Technicolor’s visual effects unit to become a separate company in Reorg

Entertainment services and hardware giant Technicolor has announced a major reorganization, with plans to spin off its Creative Studios division into a separate company, issue convertible debt to reduce leverage, change its general management and sell its trademark licensing unit.

Technicolor plans to divest 65% of its Creative Services unit in a tax-free return of assets to shareholders under French law. The spin-off will be presented to shareholders for approval at the annual meeting at the end of June and is expected to close in the third quarter.

The resulting company, like Technicolor, would be listed on the Euronext Paris stock exchange. Technicolor will consider other options to divest the remaining 35% of its Creative Studios assets, in an effort to reduce debt for both entities, he said.

The company also plans to take further steps to reduce its debt, using a refinancing of current debt and issuing €300 million Mandatory Convertible Notes, which will become Technicolor shares once the spin-off is completed. . Technicolor said it has already received commitments to buy the entire bond tranche from Angelo Gordon, Bpifrance and others.

The conversion price of the bonds would be equal to 2.60 euros per share, i.e. a discount of 5% compared to the volume-weighted average price of the shares over the last three months. Two-thirds of shareholders will have to vote to approve the new ratings at a special meeting scheduled for early next quarter.

“After careful consideration, we have determined that the continuation of the partial spin-off of TCS from the Group, together with the full refinancing of existing debt, will be the solution that best aligns strategy, value creation and financial objectives for all of Technicolor’s stakeholders,” said CEO Richard Moat. “We are convinced that this transaction is a unique opportunity to ensure that both TCS and Technicolor Ex-TCS have the right capital structure to support their developments, their long-term ambitions and organic growth.The execution of these transactions will allow both companies to pursue their own strategic programs, be more agile and, ultimately, to thrive as independent businesses.

Following the spin-off, Moat will be proposed as chairman of Technicolor’s board of directors, while Luis Martinez Amago, who served as head of the company’s Connected Home division, will take over as CEO. The board also added Katherine Hayes as an independent director, replacing Cécile Frot-Coutaz, who resigned last fall.

The Creative Services unit provides visual effects and related services and technology to film, television, games, advertising and streaming video companies in Hollywood and beyond. It owns several notable and specialized animation and special effects studios, including MPC, Mikros Animation, The Mill, and Technicolor Games. The division’s studios also draw on a large India-based production pipeline and have established an in-house Academy training program to develop its own talent base for highly technical work.

As proof of the occupied sector, Technicolor said that MPC and Mikros Animation are already two-thirds booked for next year’s projects. In this, they resemble many of the industry’s other major post-production outlets, doing wall-to-wall business as major streaming services continue to order work for dozens of projects in the heated battle for the audience market share.

With the refinancing and issuance of new notes, a standalone unit of Creative Studios is expected to “benefit from leverage in line with market peers” in the capital-intensive and highly competitive visual effects industry, the company said, offering “a unique ‘pure game’ story of fairness in a market experiencing exponential growth driven by growing demand for content.”

The spin-off will help the company reduce the “conglomerate discount” by investors who tend to pay less than the sum of the shares for shares in a multi-divisional organization.

The company also said it received a binding cash offer of 100 million euros to sell its brand licensing business in a deal expected by July. The company did not disclose the identity of the buyer.

Technicolor underwent a series of reorganizations and cuts in 2020 and 2021 under Moat, saving €171 million in the first year, and a further €116 million in 2021. Additional cuts in 2022 will bring the combined savings to over €350 million. euros.

The Paris-based company’s announcements accompanied Technicolor’s quarterly results, which saw revenue fall 1.7%. The company said it met its full-year 2021 targets, with adjusted EBITDA of €268 million and negative free cash flow of €2 million before tax and financial adjustments.

Technicolor also reconfirmed previous guidance for 2022, indicating that revenue from continuing operations is expected to increase, with adjusted EBITDA from these units expected to reach €375 million, with free cash flow before finance and tax expected to reach €230. millions of euros.

The Creative Studios unit saw “strong” improvements in revenue, but the company’s Connected Home unit, which makes broadband equipment and Android TV set-top boxes, was hit by the same component shortages and service issues. supply chain that are shaking up the rest of the tech hardware industry.

The company also still provides services related to DVD production and distribution, although Technicolor said the division is “working on significant further expansion of the non-disc business”. Technicolor after the Creative Studios spin-off will include Connected Home and DVD Services units.

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