Spackman shares soar on plan to sell Zip Cinema for $20.6 million

SINGAPORE (THE BUSINESS TIMES) - Spackman Entertainment Group has agreed to sell its entire Zip Cinema business to Kakao Entertainment, a subsidiary of South Korea-listed Internet company Kakao Corp, for about 18 billion won (S$20.6 million) in cash.

The production house is also known as Zip Korea. It was disclosed as a major asset of Spackman when the group in July last year announced it signed a non-binding letter of intent to sell the business to an unnamed potential buyer, who was then only known to be a content production company listed in South Korea.

In its latest regulatory filing on Tuesday (Sept 14), Spackman said the sale will be subject to shareholder approval at an extraordinary general meeting (EGM) to be announced in due course.

The news sent Spackman shares soaring, with the Catalist-listed stock up 0.1 cent, or 25 per cent, to 0.5 cent as at 10.52am on Wednesday.

According to a valuation report by independent valuer Echon Accounting Corporation, Morison KSi Korea, Zip Korea has been valued at between 15.1 billion and 17.7 billion won. This report will be set out in the circular to shareholders at the upcoming EGM.

Based on the group's financial statements for FY2020, Zip Korea's net tangible asset (NTA) value as at end-last year is US$6.6 million (S$8.9 million) and its book value stood at US$7.3 million. This would allow Spackman to net a disposal gain of US$8.9 million and an excess of net proceeds over the book value of about US$8.3 million.

Assuming the disposal had been completed on Dec 31 last year, this would have resulted in a FY2020 NTA per share of 1.7 US cents instead of 1.2 US cents. Loss per share for the financial year would have been 0.708 US cents instead of 1.205 US cents had the transaction been completed on Jan 1 this year.

Citing uncertainty in the entertainment sector brought on by the Covid-19 pandemic, Spackman said it expects the proposed disposal to result in higher group NTA, reduce loss per share, and enhance the group's current ratio and liquidity.

The group added that proceeds from the sale of Zip Cinema will provide it with working capital for business diversification and expansion into other businesses.

It is particularly interested in co-producing and financing United States films, which it believes to be potentially more profitable than South Korean films due to a wider international audience base. The group said its pipeline of US Hollywood projects include four potential new films, which will be announced once definitive agreements have been signed.

Spackman is also intending to use the sale proceeds to expand its over-the-top business as well as explore further investment or acquisition opportunities complementing its business strategy of focusing on US films.

It said its production of US film projects will create opportunities for Korean artistes in its associated company Spackman Media Group to participate in "top-quality content production and collaborate with international brands for advertisements and endorsements".

Shares of the group last changed hands at 0.4 cent on Tuesday before it called for a trading halt during the midday break. The counter is to resume trading today.