Dec 03, 2020
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Cinram units sink; shareholder urges sale

TORONTO (CP) _ A major shareholder of Cinram International Income Fund (TSX:CRW.UN) said Monday that the DVD and CD manufacturer should put itself up for sale or go private because its stock is undervalued.

Amaranth Advisors, a U.S. investment fund that indirectly owns about 15 per cent of Cinram, made the suggestion in a public letter to Cinram trustees, after Cinram’s units dropped about five per cent on Monday morning to $20.82, their lowest in more than a year.

Cinram units recovered some of their lost ground by the end of the day, closing down 3.64 per cent at $22, an 83-cent decline for the day, with 1,768,878 units traded at the Toronto Stock Exchange. Amaranth suggested in its letter that the heavy trading in Cinram on Monday was due to uncertainty about Amaranth’s plans for eight million Cinram units that it owns, through Amaranth Canada Trust (ACT).

"Earlier this morning the Amaranth investment fund group announced significant trading losses in its natural gas trading business. Shortly thereafter, the trust units of Cinram came under intense selling pressure. Given the absence of any fundamental news about Cinram, we believe this selling was due to market participants speculating about ACT’s intentions with respect to its Cinram holdings," Amaranth said in a letter signed by Manos Vourkoutiotis.

"It has been our view, which we understand is shared by the trustees and management of Cinram, that the public markets have failed to recognize the value of Cinram’s business for quite some time. Given that the Cinram unit price has dropped five per cent this morning without any fundamental news, we have come to the conclusion that this fact will persist for the foreseeable future.

"We believe that the trustees can materially enhance unitholder value by concluding, as we have, that Cinram simply will not receive an appropriate valuation in the public markets. Therefore, we believe that the trustees of Cinram should immediately retain financial advisors to explore a sale of Cinram, including a going private transaction."

Salman Partners analyst Naser Iqbal declined to comment on the reasons behind Monday’s selloff of Cinram units, but agreed they were undervalued, given the strength of its finances. Coincidentially, Iqbal said, he had also concluded in a Sept. 12 research report that Cinram’s shares are undervalued and there’s a good case for it to be taken private through a leveraged buyout or sale to a private equity firm.

"The punch line is, it’s very do-able," Iqbal said in an interview. "I think at the end that the economics speak for themselves."

There are a lot of potential ways for the Cinram to maximize the values for its shareholders "and being sold or being taken private are just two possibilities."

Cinram closing stock price Monday was still below the previous 52-week low of $22.29 and far from the high of $30.30 in early March, a day before it plunged after the company confirmed widespread expectations that it would convert into an income trust. 

Normally, such an conversion would push up the value of a company, because of the favourable tax treatment that income trusts receive. However, in Cinram’s case investors are also concerned its long-term future in an era of downloadable music and video.

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Headline, Industry News

Cinram units sink; shareholder urges sale

TORONTO (CP) _ A major shareholder of Cinram International Income Fund (TSX:CRW.UN) said Monday that the DVD and CD manufacturer should put itself up for sale or go private because its stock is undervalued.

Amaranth Advisors, a U.S. investment fund that indirectly owns about 15 per cent of Cinram, made the suggestion in a public letter to Cinram trustees, after Cinram’s units dropped about five per cent on Monday morning to $20.82, their lowest in more than a year.

Cinram units recovered some of their lost ground by the end of the day, closing down 3.64 per cent at $22, an 83-cent decline for the day, with 1,768,878 units traded at the Toronto Stock Exchange. Amaranth suggested in its letter that the heavy trading in Cinram on Monday was due to uncertainty about Amaranth’s plans for eight million Cinram units that it owns, through Amaranth Canada Trust (ACT).

"Earlier this morning the Amaranth investment fund group announced significant trading losses in its natural gas trading business. Shortly thereafter, the trust units of Cinram came under intense selling pressure. Given the absence of any fundamental news about Cinram, we believe this selling was due to market participants speculating about ACT’s intentions with respect to its Cinram holdings," Amaranth said in a letter signed by Manos Vourkoutiotis.

"It has been our view, which we understand is shared by the trustees and management of Cinram, that the public markets have failed to recognize the value of Cinram’s business for quite some time. Given that the Cinram unit price has dropped five per cent this morning without any fundamental news, we have come to the conclusion that this fact will persist for the foreseeable future.

"We believe that the trustees can materially enhance unitholder value by concluding, as we have, that Cinram simply will not receive an appropriate valuation in the public markets. Therefore, we believe that the trustees of Cinram should immediately retain financial advisors to explore a sale of Cinram, including a going private transaction."

Salman Partners analyst Naser Iqbal declined to comment on the reasons behind Monday’s selloff of Cinram units, but agreed they were undervalued, given the strength of its finances. Coincidentially, Iqbal said, he had also concluded in a Sept. 12 research report that Cinram’s shares are undervalued and there’s a good case for it to be taken private through a leveraged buyout or sale to a private equity firm.

"The punch line is, it’s very do-able," Iqbal said in an interview. "I think at the end that the economics speak for themselves."

There are a lot of potential ways for the Cinram to maximize the values for its shareholders "and being sold or being taken private are just two possibilities."

Cinram closing stock price Monday was still below the previous 52-week low of $22.29 and far from the high of $30.30 in early March, a day before it plunged after the company confirmed widespread expectations that it would convert into an income trust. 

Normally, such an conversion would push up the value of a company, because of the favourable tax treatment that income trusts receive. However, in Cinram’s case investors are also concerned its long-term future in an era of downloadable music and video.

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Headline, Industry News

Cinram units sink; shareholder urges sale

TORONTO (CP) _ A major shareholder of Cinram International Income Fund (TSX:CRW.UN) said Monday that the DVD and CD manufacturer should put itself up for sale or go private because its stock is undervalued.

Amaranth Advisors, a U.S. investment fund that indirectly owns about 15 per cent of Cinram, made the suggestion in a public letter to Cinram trustees, after Cinram’s units dropped about five per cent on Monday morning to $20.82, their lowest in more than a year.

Cinram units recovered some of their lost ground by the end of the day, closing down 3.64 per cent at $22, an 83-cent decline for the day, with 1,768,878 units traded at the Toronto Stock Exchange. Amaranth suggested in its letter that the heavy trading in Cinram on Monday was due to uncertainty about Amaranth’s plans for eight million Cinram units that it owns, through Amaranth Canada Trust (ACT).

"Earlier this morning the Amaranth investment fund group announced significant trading losses in its natural gas trading business. Shortly thereafter, the trust units of Cinram came under intense selling pressure. Given the absence of any fundamental news about Cinram, we believe this selling was due to market participants speculating about ACT’s intentions with respect to its Cinram holdings," Amaranth said in a letter signed by Manos Vourkoutiotis.

"It has been our view, which we understand is shared by the trustees and management of Cinram, that the public markets have failed to recognize the value of Cinram’s business for quite some time. Given that the Cinram unit price has dropped five per cent this morning without any fundamental news, we have come to the conclusion that this fact will persist for the foreseeable future.

"We believe that the trustees can materially enhance unitholder value by concluding, as we have, that Cinram simply will not receive an appropriate valuation in the public markets. Therefore, we believe that the trustees of Cinram should immediately retain financial advisors to explore a sale of Cinram, including a going private transaction."

Salman Partners analyst Naser Iqbal declined to comment on the reasons behind Monday’s selloff of Cinram units, but agreed they were undervalued, given the strength of its finances. Coincidentially, Iqbal said, he had also concluded in a Sept. 12 research report that Cinram’s shares are undervalued and there’s a good case for it to be taken private through a leveraged buyout or sale to a private equity firm.

"The punch line is, it’s very do-able," Iqbal said in an interview. "I think at the end that the economics speak for themselves."

There are a lot of potential ways for the Cinram to maximize the values for its shareholders "and being sold or being taken private are just two possibilities."

Cinram closing stock price Monday was still below the previous 52-week low of $22.29 and far from the high of $30.30 in early March, a day before it plunged after the company confirmed widespread expectations that it would convert into an income trust. 

Normally, such an conversion would push up the value of a company, because of the favourable tax treatment that income trusts receive. However, in Cinram’s case investors are also concerned its long-term future in an era of downloadable music and video.

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