DHX.DB - DHX MEDIA LTD. 5.875% Debentures

[Philbert77]

DHX Media (owners of Peanuts, Strawberry Shortcake, and Wildbrain) has been doing terribly. They recently announced earnings that were way below estimates and slashed their dividend. The common has cratered from over $6 to under $2 this year. The convertible debentures have also fallen to around $76. At that current price you are looking at a current yield of 7.7 percent and a yield to maturity of 11.6 percent.

 

The company has a lot of valuable entertainment assets in these products and the likelihood of them going bankrupt does not appear that high. But of course there are risks. They hold a high level of debt and have not been firing on all cylinders.

 

I see this as a portion of my fixed income portfolio. Albeit more risky than bonds or GICs.

[sculpin]

I get a ytm of 11.6% on the DHX debentures at $76

 

 

[Philbert77]

I like that even better! I used one of those online calculators for the YTM. I thought the number should be higher but figured the calculator knew better. (I corrected it above).

[SafetyinNumbers]

Anyone still looking at these?

 

Apparently an Indian company has made an offer proposal for DHX although the market doesn’t quite believe it.

 

I’m surprised the debs are down though as there is a change of control provision.

[Philbert77]

I still own the debentures. It does not seem like a very great offer to me.

[SafetyinNumbers]

I still own the debentures. It does not seem like a very great offer to me.

 

If it’s real, you don’t think a 100% premium wins the day? Obviously, we need to know what assets the buyer is bringing to the table. Perhaps it sparks a competitive process?

 

My only point though was, if there is a change of control, the debs get par which is why I’m confused they are offered a point lower today.

[5xEBITDA]

You need to read the change of control definition in the prospectus - it is possible (likely?) that the way the offer was structured does not trigger the CoC. That is my suspicion.

 

Or, the market is assigning very low probability of the deal going through if it would indeed be a triggering event.

[SafetyinNumbers]

Yeah, I suspect there are more sophisticated investors in the debentures so they assumed that its not a real bid and used the liquidity to get off of a position.

 

If you are comfortable with holding the debt to maturity, its kind of a free option since it came a dollar cheaper after the news.

[Philbert77]

 

If it’s real, you don’t think a 100% premium wins the day? Obviously, we need to know what assets the buyer is bringing to the table. Perhaps it sparks a competitive process?

 

My only point though was, if there is a change of control, the debs get par which is why I’m confused they are offered a point lower today.

 

It was reported that the offer was $5.32 per share payable in $1.32 per share in cash and $4.00 Per Share in common stock of the merged entity.

 

http://www.businessworld.in/article/Sakthi-Global-Holdings-Markets-Announces-Merger-Offer-For-DHX-Media-/04-06-2019-171402/

 

if it's legit - who would want to be stuck holding the bag on a very unknown company?

 

But obviously few people believed this offer was/is legit.

 

I think Sacha Peters over at Divestor.com has likely hit the nail on the head:

 

"Apparently in India it is not illegal to send unsolicited bids to North American publicly traded companies to spur liquidity that enables you to get out of your own large net loss positions in said firms"

 

https://divestor.com/?p=8633

[SafetyinNumbers]

 

If it’s real, you don’t think a 100% premium wins the day? Obviously, we need to know what assets the buyer is bringing to the table. Perhaps it sparks a competitive process?

 

My only point though was, if there is a change of control, the debs get par which is why I’m confused they are offered a point lower today.

 

It was reported that the offer was $5.32 per share payable in $1.32 per share in cash and $4.00 Per Share in common stock of the merged entity.

 

http://www.businessworld.in/article/Sakthi-Global-Holdings-Markets-Announces-Merger-Offer-For-DHX-Media-/04-06-2019-171402/

 

if it's legit - who would want to be stuck holding the bag on a very unknown company?

 

But obviously few people believed this offer was/is legit.

 

I think Sacha Peters over at Divestor.com has likely hit the nail on the head:

 

"Apparently in India it is not illegal to send unsolicited bids to North American publicly traded companies to spur liquidity that enables you to get out of your own large net loss positions in said firms"

 

https://divestor.com/?p=8633

 

You could tell it was BS immediately because the terms included an 80% approval from DHX shareholders which isn’t a threshold in Canadian law as far as I know.

[bizaro86]

I own these independently of the bid. I think they're money good because of the asset coverage here. The assets may not be tangible, but their collection of IP absolutely covers the debt, imo.

[5xEBITDA]

How did you value the IP?

[bizaro86]

Back of the envelope I think the 51% of their peanuts stake is worth more than the $236 MM they got for 49% of the stake. Plus you have to add everything else they own. I think even in a distressed situation someone would take them out for more than the value of the debt as part of an IP land grab.  Their huge back catalogue should have value to one of the media cos trying to build a streamer.

 

I don't have an exact figure for the IP, more of a "don't need to know a man's weight to see he's fat" type situation. Could be wrong, of course.

[Philbert77]

So these debentures have languished. Any holders out there?

[bizaro86]

I still have a little piece of these. On the one hand, net debt to EBITDA is over 5, so this isn't exactly an investment grade credit and the high YTM is justified. Offsetting that, they are getting real traction on the production side, with the Peanuts deal for Apple, and deals with Netflix, DreamWorks, and Mattel all going. I think the value of their owned brands, library content, and production capabilities probably has a private market value greater than the debt. But I'm no closer to an exact value on those than I was before.

 

I just have a small position, but if they announced they were selling or winding down their AVOD business I would buy lots. They raised more debt this summer to invest more in their youtube business, and I don't see them ever having the scale to have any market power there. I'd rather they sell content to streaming competitors rather than try to compete themselves.

 

Edit: this is called wildbrain now, for anyone casually looking into it.

[sethatk]

DHX now Wild Brain (WLDBF) can a mod change the thread as this stock seems to be heating up?

[spartan]

See attached for some notes I've made on Wildbrain.

 

Thanks,

spartan

Wildbrain.pdf

[JRM]

See attached for some notes I've made on Wildbrain.

 

Thanks,

spartan

 

Thanks for sharing. 

 

I remember as a kid going on road trips, and one day my dad had an epiphany.  He said, "adults don't want to go to McDonald's, but they go there because their kids want to go."  He then invested in McDonalds and sold 20 years too early.

 

I feel the same way about children's programming.  It is the only reason we subscribe to Disney+, and the only reason we don't periodically turn off our Netflix subscription.  It makes the service very sticky if you have kids.

[spartan]

See attached for some notes I've made on Wildbrain.

 

Thanks,

spartan

 

Thanks for sharing. 

 

I remember as a kid going on road trips, and one day my dad had an epiphany.  He said, "adults don't want to go to McDonald's, but they go there because their kids want to go."  He then invested in McDonalds and sold 20 years too early.

 

I feel the same way about children's programming.  It is the only reason we subscribe to Disney+, and the only reason we don't periodically turn off our Netflix subscription.  It makes the service very sticky if you have kids.

 

Haha although I know of some adults that like going to McDonald's (see attached). That must've been really upsetting for your dad.. it always amazes me how such a simple yet wise insight can lead to an incredible investment.

 

Hastings has been pretty clear (in words and actions) that he considers Disney his main competitor. In one interview, he said that he wanted to compete with them in animation which is obviously reckless. If there is no industry collusion re: cost controls (amongst the major streamers), that will bid up the price of content. Wildbrain seems perfectly capable of capitalizing on that industry dynamic.

 

And to your point, kids content makes the service stickier and a "must-have" if you want to engrain a daily consumer habit.

[valueventures]

Nice piece on the versatility of the Peanuts brand:

https://issuu.com/bmsrl/docs/lm_march_2021_eng/s/11983257