If your idea of big acquisitions involves movie screens that can tower eight stories tall, keep an eye on IMAX (Nasdaq: IMAX). This morning, the company announced that it was seeking "strategic alternatives" after receiving several unsolicited offers.
IMAX isn't desperate for a suitor. In fact, it also posted 2005 results today that topped its earlier guidance. Last month, it had announced that it was likely to meet or exceed its forecast for 2005 profits between $0.35 and $0.38 a share. True to its optimism, IMAX earned $0.40 a share last year, 54% higher than the $0.26 a share it earned in 2004.
IMAX closed out the fourth quarter with a record 14 new theater installations. It installed 34 new systems in 2005. The backlog is thick; the company received orders for 45 installations through all of 2005.
It is also expanding its symbiotic relationship with Hollywood. Over the past few years, IMAX has translated some of the biggest Time Warner (NYSE: TWX) blockbusters to fit its larger-than-life projecting platform. Moviegoers have shown that they are willing to pay a premium to see Batman, Harry Potter, or Willy Wonka at IMAX theaters. That has doubtlessly helped pick up the pace of new orders. This morning, IMAX also announced that it will be working with Sony (NYSE: SNE) to release its animated feature film Open Season in 3D come September.
Earnings are climbing. Orders are piling in. New studio partners are knocking on its door after seeing how IMAX was able to resurrect Polar Express. Why is IMAX putting itself up for sale, and what kind of premium can investors expect?
That last question is the key. More often than not, companies that publicly put themselves on the block are in dire situations. The eventual buyout offers come at meager markups, if any. IMAX is in an entirely different situation. It has received "several" offers, and it has no reason to consider anything less than a juicy premium.
Where are these offers coming from? Possibly from some of its existing partners, like Time Warner or AMC Theaters. They may also be coming from some of the overseas conglomerates that have benefited from importing IMAX systems into their countries.
IMAX is in an attractive position, growing even as traditional movie theater chains draw fewer patrons. That's why it was recommended in the Motley Fool Rule Breakers growth stock newsletter service last year. If IMAX is eventually gobbled up, it wouldn't be the first time that the newsletter has hit on buyout bait. Earlier this week, its Archipelago Holdings selection merged into NYSE Group (NYSE: NYX) at a price several times greater than its original recommendation. A month earlier, Liberty Media (NYSE: L) closed on its purchase of Rule Breakers pick Provide Commerce.
Finding small companies before they get taken out at loftier levels: Is that the secret sauce that has helped the newsletter's stocks average a 29.7% gain -- while the market has mustered a mere 6.7% average uptick? Perhaps. Either way, it's clearly a case of addition by subtraction.
Time Warner is a Motley Fool Stock Advisor pick.
Longtime Fool contributor Rick Munarriz is a movie buff, but he does not own shares in any of the companies mentioned in this story. The
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