Today ACME Communications announced the closing of its New Mexico TV stations to Tamer Media and Lin Media. The company announced a $0.93 distribution to shareholders of record as of December 14 to be paid on December 21. The distribution will be treated entirely as a return of capital.
After the distribution, ACME Communications will still own its TV show “The Daily Buzz,” which the company is trying to sell. ACME also has $1.0 million in cash in escrow with Lin Media for a period of one year and $290,000 in escrow with the FCC for a period of two years.
The swift closing of the sale and the announced distribution are good news, but the amount of the distribution is somewhat disappointing. In my original post I projected a distribution as high as $1.078 per share, based on the company’s stated intentions of distributing the entire proceeds of its sales to shareholders. The significant gap between the maximum distribution and the actual distribution is explainable in part by cash in escrow of 8 cents per share. The company will eventually receive this cash, provided unexpected occurs. For the other 6.8 cents per share, I don’t know. Was it paid to Tamer Media or Lin Media as part of a working capital adjustment? Was it paid to a broker or advisor on the deals? Perhaps it is being retained by the company? Until the company’s next quarterly report is released (some time before December 21, per the company) the fate of that cash is a matter of conjecture.
The question now is how the market will value ACME’s remaining cash and operating asset, The Daily Buzz. I am not optimistic about the company receiving a significant sum for The Daily Buzz, so I am going to disregard its potential value. The show does generate an operating profit, so I expect the company will be able to operate without significant cash burn until such time that it succeeds in selling the show. The value of the cash in escrow should obviously receive a discount. I think 50% is appropriate. 50% of the $1.29 million cash in escrow is 4 cents per share, a conservative estimate of the company’s remaining value. (The market also judges it to be conservative. As I write, ACME’s share price bid/ask is $0.96/$1.06, indicating a mid-point price of 8 cents per share after the distribution.)
If my conservative estimates hold true, investors will be left with a stock worth $0.04 per share when the $0.93 distribution is paid out on December 21 for a total value of $0.97 per share. This represents a return of 12.8% on ACME Communication’s $0.86 share price when I originally wrote about the company on October 4, 2012. Annualized, the figure is 75.7%. Even though the company failed to meet my expectations for the distribution, investors may still be left with a satisfactory outcome, as well as some optionality upside from the company’s remaining operating asset.
Disclosure: No position.