mm2 shares see heavy trading after company gets offer for cinema business

ENTERTAINMENT group mm2 Asia 1B0 : 1B0 0% is hoping to sell at least 80 per cent of its cinema business to a local investor, for a price tag of between S$80 million and S$120 million.

In a regulatory filing on Wednesday, mm2 said it has entered into a non-exclusive binding term sheet with financial investment firm Kingsmead Properties for the proposed sale.

Kingsmead is solely owned by Jasmine Foo Mei Ling, a Singapore citizen whom the company describes as having "previously worked in several global financial institutions" and who is now managing "her family business interests".

Other earlier announced options for the cinema business, including a possible merger and an initial public offering, are still on the cards, mm2 said.

mm2 Asia was the most actively traded counter in early morning trade on the Singapore Exchange on Wednesday, following the announcement. Ultimately, some 30.1 million shares changed hands by the close of trade.

Shares rose to an intra-day high of 7.4 Singapore cents at the 9am open, up by 10.5 per cent on the last close. The counter eventually ended the day at 6.9 cents, up 2.99 per cent or 0.2 cent 

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No married deals were recorded, according to ShareInvestor data.

The cinema business appears to be a profitable one. According to mm2's filing, the proportionate net profit attributable to an 80 per cent stake would have been S$66.9 million, for FY2021 ended March. The group’s net loss for FY2021 was S$99.5 million.

If the transaction had been completed on April 1, 2020, mm2's loss per share for FY2021 would go from 3.9 cents to 6.94 cents.

Furthermore, mm2 will book a loss of S$70.5 million from the proposed transaction because the cinema business is currently valued in its books at S$190 million.

Nevertheless, mm2 said a sale would allow it to "focus on its core business of movie production and content creation". This business has continued to grow thanks to a spike in demand for video streaming as many people have been confined to their homes through the pandemic.

The sale would also reduce its gearing ratio from 1.52 to 1.13 times.

The deal is a significant one for mm2 given that an 80 per cent stake in the cinema business would have accounted for 46 per cent of mm2's net asset value as of March 31. Also, mm2's market capitalisation is currently a little over S$150 million. A consideration of S$120 million would represent 80 per cent of its market cap.

The deal is still subject to the negotiation and finalisation of a sale and purchase agreement. It will also require shareholder approval.

Kingsmead is expected to pay mm2 a deposit of S$3 million next week and another S$3 million after the sale and purchase agreement is signed. If the deal is not completed  because shareholders do not give their approval or if mm2 manages to find a buyer willing to pay more for the business, Kingsmead can opt to get its deposit back in cash or in the form of new mm2 shares at an issue price of 8 cents per share.

If, however, mm2 is able to get approval to list the cinema business on Catalist before the deal is completed, then Kingsmead can opt to exchange its deposit for shares in either mm2 or in the newly listed entity.

READ MORE: mm2 Asia's bet on cinemas may be a long shot