In February, Pinewood's management appointed financial advisor Rothschild to help review the group's capital base and structure, as a clique of four shareholders hold nearly 85 per cent of its shares. That has prevented Pinewood from graduating to the main market - which requires a free float of at least 25 per cent - and constrained both its growth potential and access to capital. The group has tried to broaden its investor base and boost liquidity with little success: it launched a £30m placing in April 2015, but investor Aviva snapped up the shares.
The solution could be the possible indirect cash offer from PW Real Estate Fund III, run by asset manager Aermont Capital, a specialist in real estate with about €4bn (£3.45bn) in equity. Aermont has completed its due diligence and expects to arrange financing in time to make a firm offer by 25 August. Its offer of 560p in cash and a final dividend of 3.2p values Pinewood at about £323m, and represents a premium of 31 per cent to the group's average closing share price for the 20 days to 9 February, just before it announced the strategic review.
The deal has received support from Pinewood's two largest investors: Goodweather Investment - a subsidiary of conglomerate Peel Holdings - and jeweller Warren James, who together control over 65 per cent of its shares. The pair may see it as an amicable resolution: in 2011, Warren James raised its stake to scupper Goodweather's attempt to take Pinewood private. Moreover, Pinewood's board considers the bid to be "attractive" and points out that it would let shareholders realise a return on their investments, which has been difficult due to the poor liquidity of the shares.
A look at Pinewood's recent performance suggests Aermont's offer is on the low side. Underlying sales climbed 18 per cent in the core media services division in the year to 31 March, reflecting strong demand for studio space and ancillary services as well as occupancy of 98 per cent in the group's media hub, where nearly 250 independent media businesses lease out space. Pinewood is also addressing its capacity constraints, which weighed on television revenues in the period. It recently built 320,000 square feet of stages, workshops and office buildings - the first phase of a £200m expansion programme that promises to add 1m square feet of infrastructure and roughly double studio space.
Analysts at N+1 Singer expect adjusted cash profits of £29.1m this financial year, giving EPS of 20.3p, rising to £32.1m and 25p in FY2018. Aermont's offer pegs Pinewood's enterprise value at 12.5 times forecast cash profits for FY2018, which fails to reflect the potential upside of the expansion programme in their view. N+1 Singer's scribes value the group at £344m to £359m, or 7 to 11 per cent higher than the offer on the table. The chart below shows Pinewood's robust top-line growth in recent years, as well as an improving profit performance.
