SINGAPORE (THE BUSINESS TIMES) - The Singapore Exchange (SGX) has shot a list of queries to Spackman Entertainment Group regarding the company's plan to sell its entire Zip Cinema business for about 18 billion won (S$20.5 million).
Among other things, SGX asked the company on Friday evening (Sept 17) about its consideration and rationale for the proposed sale, and whether this was in the best interest of the company and its shareholders.
SGX noted that Spackman's financial year 2020 annual report released on April 15 had said that Zip Cinema has achieved "notable critical and box office success", in that its films had rung up good ticket sales, and the business has achieved commercial success even amid the ongoing Covid-19 pandemic.
Production of films had also constituted half the group's FY2020 revenue, said SGX.
Spackman argued that the proposed disposal provides the company with the opportunity to expand its content production for over-the-top (OTT) platforms, which have gained popularity in the film and drama sector, with consumers growing more accustomed to online viewing and social distancing.
OTT platforms are media services offered directly to viewers via the Internet.
The transaction's consideration is also higher than the group's current market capitalisation of $7.6 million, said Spackman. The disposal will furnish the company with funds to diversify into the United States Hollywood film sector, which is potentially more profitable than South Korean films because Western films have a wider, international audience base, said the company.
The company had previously said it is expected to net a disposal gain of US$8.9 million (S$12 million) and an excess of net proceeds over the book value of about US$8.3 million from the disposal.
SGX asked about Spackman's experience in the US film market, and about the role the company would have in US Hollywood projects.
Spackman replied that the production of US films is similar in business model, except it is more flexible in terms of structure, which will provide the company with the opportunity to leverage its capability of delivering quality films on a competitive budget.
The company added that it will secure the opportunity to participate in US Hollywood films through the development, co-production and financing of these projects. It also said that the gain from the proposed disposal would put it in an improved financial position and furnish it with the liquidity to focus more on its OTT business and the US Hollywood film sector.
SGX asked whether the company intends to continue producing films. To this, Spackman said it will continue to produce films and dramas through its subsidiaries Studio Take, Simplex Films and Greenlight.
SGX raised queries on how Kakao Entertainment Corp, a subsidiary of South Korea-listed Internet company Kakao Corp and the buyer of Zip Cinema, was introduced to the company.
The company said Kakao Entertainment approached Zip Korea directly on the negotiations, as Zip Korea was expanding its content production business.
SGX also asked Spackman about the safeguards for the net proceeds of about 18 billion won that it will pocket from the disposal. The group said it has a cash management policy in place for the net proceeds, and that it will disclose significant utilisation and reallocation of the uses of the proceeds where applicable.
In the same announcement, SGX noted that Spackman had entered into a sale-and-purchase agreement (SPA) with a prospective buyer of a Zip Korea-owned office building in Paju-si, South Korea; the bourse also pressed for information on the counterparty of the SPA.
Spackman simply said the potential buyer is a publishing company that is unrelated to the company and its board of directors. It said the expected property disposal is slated to be completed between mid-November and the end of the year.
Spackman shares ended on Friday unchanged at 0.5 cent.
