The Chennai-based animation major, the Rs.389 crore turnover Pentamedia Graphics, is in deep trouble. On one hand, there are allegations that the company paid huge sums to acquire small overseas/domestic companies, and on the other, its high profile acquisition, Film Roman Inc., is facing a sexual harassment case filed by four of its female employees.
In addition, Pentamedia Graphics is yet to see any signs of Rs 183 crore that Pentasoft Technologies Ltd, a group company, owes it. The latter is reported to be considering an overseas issue for quite sometime.
According to sources, Pentamedia Graphics is slightly reworking its broadband portal, Num TV's strategy. Num TV, a separate division, is pruning its loss-making activities and has sent out some employees of its radio channel due to insufficient revenue.
At the bourses, it is a vertical fall for the company's scrip. Pentamedia's scrip is now changing hands for less than Rs. 96 (as of 29 March 2001) after being traded for Rs. 350 just a couple of months ago. (See a related story, Pentamedia Graphics: Great plans, yet a sceptical market)
In an interview with domain-B, Mr. K. Srinivasan, director and chief operations officer (COO), Pentamedia Graphics, tries to clear the clouds that surround the company's prospects. Excerpts:
domain-b: Pentamedia Graphics is said to have paid more than the market price for acquiring Film Roman Inc., USA. When its director, Mr. John Hyde, acquired 50,000 shares in two tranches for $0.75 and $0.56 respectively, why did Pentamedia Graphics not resort to market purchases instead of inking a deal for $15 million to acquire 60 per cent stake in the US company?
Mr. K. Srinivasan: The acquisition of Film Roman is purely based on the following factors. Firstly, it is a 16-year-old company having major clients. It continues to produce The Simpsons, King of the Hill, The Oblongs and X-men. Moreover, Film Roman has ongoing relationships with nationally known networks producers and clients. It also has a number of new projects in production, pre-production and development that are partnered with major clients assuring long-term sales. In addition to all this, it is the second-largest film production unit in the US, working for global companies like Warner Brothers and Pixel.
Further, we did not purchase any shares from them. Our holding in the company has come through the issue of fresh shares and hence, the cash is going to the company and not to individual shareholders.
Keeping the above factors in mind, we acquired Film Roman for $15 million only after due diligence. Today, Film Roman has orders worth of $40 to $45 million. From their total loss of $4.20 million, they have minimised their loss to the tune of $200,000. Mr. John Hyde and his team are quite confident that they will come out with positive results during the first quarter.
domain-b: What is the possible impact of the sexual harassment case filed by four female employees of Film Roman Inc. Have you provided for the damages in Pentamedia Graphics' accounts? Was the company aware of the case when it acquired Film Roman?
KS: There is nothing to be alarmed about. Film Roman has sorted out all the problems. We have hired a professional US legal firm and it has already been taken care off. These are very small issues and need not require much importance.
domain-b: Sometime ago, Pentamedia Graphics announced that it will invest in Digital Domain (a sum of $ 10 million), Thornbush ($ 3 million), Studio 345 Canada ($1.5 million). Has it invested money in these companies?
KS: Regarding Pentamedia's investments in Digital Domain, Thornbush and Studio 345 Canada, our attorney has been working on this. We will let you know more details on the companies and investments after we get the diligence report.
domain-b: What about Improvision Corporation recently acquired by Pentamedia Graphics. Can you give the company's turnover, equity base and details as to who valued the company?
KS: The $10 million equity-based Improvision Corporation is an unlisted US company with $11 million turnover. It was acquired for $19.8 million in a stock swap deal. As per the deal, Pentamedia Graphics will be issuing 3.3 million global depository receipts (GDR) at $6 per underlying equity share. Stone Field Josephson Inc., known for valuing media companies in the US, had done the valuation.
Improvision Corporation, after producing a full-fledged animated feature film, Sindbad - Beyond the Veil of Mists, will be coming out with a sequel to that and has also two live action films on hand. The acquisition entitles Pentamedia to own the contents, digital assets and other tangible and intangibles of Improvision Corporation.
domain-b: Is Pentamedia Graphics acquiring companies that owe money to it? If yes, which are the companies and what is the total outstanding?
KS: No, Pentamedia has not acquired any company owing money to it.
domain-b: Pentamedia Graphics has been justifying its acquisitions on the grounds of future earning possibilities. The company has been saying that the various acquisitions have netted it digital assets that would be used in the future. Can you tell the kind of digital assets the company has acquired? Who made the valuations of such digital assets and the basis of such valuations? How will the company leverage the digital assets for its operations?
KS: Today, the world is moving towards digital technology and the strength of companies is determined by it. It may be noted that digital content can be used (can be re-purposed) for studio, media, web entertainment and theme entertainment. We have acquired digital content of around 12 terra bytes, which can be re-purposed.
About valuations, it was SBI Caps, Chennai, that did valuation of Indian companies (acquired by us) and various US Consultants have done it for US companies. We certainly would be leveraging digital content of 11 terra bytes by bringing our own animation movie in a cost-effective manner with less time and by using the digital content for games development.
Moreover, we would like to use the digital content for theme park and web entertainment. It may be noted that broadband technology has arrived in a big way worldwide and we would like to exploit this.
domain-b: What is the business potential that Pentamedia Graphics expects from its acquisitions and tie-ups?
KS: Regarding our business potential with the recent acquisition of Mayajaal, Media Dreams Ltd. and Kris-Srikkanth Sports and Entertainment Ltd., Pentamedia would like to achieve an additional sale of Rs. 200 crore in the next three years. With the acquisition of Film Roman, we are planning to achieve a turnover of around $ 30 to 35 million during this year with a profit margin.
domain-b: When will Pentamedia Graphics get its dues from Pentasoft Technologies?
KS: We are planning to get the payment due from Pentasoft Technologies by 31March 2001.
domain-b: What is the status of Num TV's hive off? Why are the foreign investors not putting in their money in the venture?
KS: As you may be aware, since the market condition is uncertain, we feel that it is not the right time for any hive off. Though many investors/institutions are showing their interest, we are just keeping it in abeyance due to global negative trend. We would look into it at an appropriate time.
domain-b: It is learnt that Num TV is be restructured and is being downsized?
KS: No, there has been no restructuring or downsizing at Num TV. It is working as a separate division focusing on the broadband technology.
also see : Pentamedia Graphics: Great plans, yet a