Description
ESGC’s latest news release (dated 11/16/21) suggests it will double by next month.
ESGC traded above $0.80/share in the days before this release.
The release states:
Eros STX Global Corporation (NYSE: ESGC) (“ErosSTX” or the “Company”) today announced that it has entered into exclusive negotiations with a third party for the sale of its STX Entertainment subsidiary, during which the parties will conduct mutual diligence and negotiate definitive agreements. The Company has engaged Lazard as a financial advisor to assist in the sale process.
My interpretation:
Entering into “exclusive negotiations” implies other bidders.
This “exclusive” bidder agreed to exclusivity while ESGC was above $0.80/share. To understand why, note that ESGC, in their Nov 2020 conf call, guided to over $1 billion in revenue, with $500 million from streaming, in the fiscal 2023 starting April 1, 2022.* EV is 30% of 2023 revenue for a company producing content for Amazon and Netflix.
Given their debt is due by December 3, ESGC would not have agreed to such exclusivity unless it was very confident that the bidder would pay at least $0.80/share. If such bidder was unwilling to pay $0.80, I doubt they would have gone exclusive. In short, I think investors miss the import of ESGC agreeing to exclusivity.
If ESGC defaults, I estimate downside is ~$0.20/share (to ~$0.15/share, though it would probably trade higher) while upside is above $0.40/share, with the probability of the latter materially above 50%, say 67% due to the confidence conveyed by ESGC entering exclusivity.
So the probability-adjusted upside vs downside is probably better than 4x ($0.28/share vs $0.07).
* " As one kind of opening comment after having been the CFO of NBCUniversal, Liz Claiborne and Discovery, I'll say that I've never been more enthused about an opportunity than the one we have here...we also outlined our fiscal '23, which again now is about 17 months away, of being $1 billion plus in revenue with over 50% derived from that digital segment I spoke of...
We’re looking at high growth through digital platforms and the highest growth media markets, amazing EBITDA and cash conversion and every incremental dollar spent and revenue conversion. In its simplest form, a lot of you know, my #1 metric is purely free cash flow per share. That's always my North Star in every CFO job I've been in, and I'm very confident that our North Star free cash flow per share here will outpace growth will outpace any other company I can think of in the space."
source: https://erosstx.gcs-web.com/static-files/ec5f2ec1-b2e3-4bb9-8d12-0fdd4dbeb017
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
announcement of ESGC's US business, STX, being sold by Dec 3