Any reason why on 2 million shares traded @0.004 say around $8,000 today with such a good news?

THE Singapore Exchange (SGX) has shot a list of queries to Spackman Entertainment Group $ Spackman: 40E 0% regarding the company' s plan to sell its entire Zip Cinema business for about 18 billion won (S$20.6 million).

 

Among other things, SGX asked the company on Friday evening 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 FY2020 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 had achieved commercial success, even amid the on-going 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 Internet.

 

The transaction' s consideration is also higher than the group' s current market capitalisation of S$7.6 million, said Spackman. The disposal will furnish the company to funds to diversify into the US Hollywood film sector, which is potentially more profitable than 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 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 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 would 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 counter-party 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 expected to be completed between mid-November and end of the year.

SHARES of Spackman Entertainment rose as much as 50 per cent on Wednesday after the group announced it was selling Zip Cinema for S$19.8 million to South Korea' s Kakao Corp.

 

As at 9.04 am, Singapore time, the counter had risen 0.2 Singapore cent or 50 per cent to 0.6 cent after some 35.9 million shares changed hands, making it the top-traded by volume at the market open.

 

The stock pulled back slightly to finish the first half of the trading day at 0.5 cent.

 

In the second half of the trading day, Spackman shares sank to 0.4 cent at 2.46pm, before rising again to 0.5 cent. The stock closed the day unchanged at 0.4 cent.

 

No married deals were recorded throughout the day, ShareInvestor data showed.

 

Based on Spackman' s share performance over the last 52 weeks, prices have ranged from 0.4 cent to 0.8 cent with the average volume traded being 2.6 million shares.

 

The group on Tuesday evening announced the proposed sale of its entire Zip Cinema business to Kakao Entertainment, a subsidiary of South Korea-listed Internet company Kakao Corp, for S$19.8 million or about 18 billion won 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 2020 announced it signed a non-binding letter of intent to sell the business to an unnamed potential buyer - then described only as a content-production company listed in South Korea.

 

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

 

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-2020 is US$6.6 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, 2020, 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 cent instead of 1.205 US cents had the transaction been completed on Jan 1, 2020.

 

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 US films, which it believes to be potentially more profitable than 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 Limited to participate in " top-quality content production and collaborate with international brands for advertisements and endorsements" .