Hold On to That Ticket Stub

Investors may have forgotten about IMAX (Nasdaq: IMAX); its shares trade for less than a movie ticket -- at a matinee -- but exhibitors sure haven't. Regal (Nasdaq: RGC) announced a joint venture with IMAX that will transform five more of its multiplex screens into giant IMAX experiences.

The Regal deal will mean as many as 21 of its screens will be part of a profit-sharing deal with IMAX by the summer of 2009. In other words, initial results have been encouraging enough at Regal for it to continue to expand its relationship with IMAX.

The news comes just two weeks after IMAX announced a 10-screen deal with China's largest movie exhibitor.

The difference between the two deals is that the Chinese pact will extend IMAX's reach in the world's most populous nation with more than 30% involved paid installations. With Regal, IMAX is going the joint venture route that will find both companies bankrolling the installation and sharing in the eventual profits.

Which approach is better? I'm a fan of the joint venture path. It creates a greater stream of recurring revenue when IMAX continues to team up with studios like Time Warner (NYSE: TWX) and Sony (NYSE: SNE) to put out enhanced versions of their theatrical releases on IMAX. Joint ventures are also easier sells, since cash-strapped multiplex operators can offer the IMAX experience with less of an initial cash investment.

The problem? Well, IMAX isn't exactly loaded with greenbacks itself. IMAX had $18.5 million in cash in its pockets at the end of June, but that is dwarfed by the $160 million in debt that the company must repay -- or replace -- in three years.

The ugly balance sheet -- one that actually sports negative book value -- is one of the reasons the company tried to find a buyer last year. It didn't pan out, and that's a pity because IMAX could sorely use a parent with deep pockets to push the potentially lucrative joint venture deals.

The timing is right. Trying to cash in after 2006's robust summer cinematic season, Cinemark (NYSE: CNK) went public earlier this year, and AMC is ready to give an IPO another go. So exhibitors now have access to the equity market in order to enter into expanded joint ventures with IMAX. Can IMAX live up to its part of the bankrolled bargain? Now more than ever, IMAX should be listening to buyout offers to shore up its financial state and make the most of its industry-invigorating technology. Potential buyers should smell the opportunities that aren't available if IMAX remains independent.    

IMAX is in the right place at the right time. It's just holding the wrong wallet.  

Screen these other IMAX feature presentations:

• IMAX had a mixed second-quarter report in July.
• It began 2007 with a laundry list of challenges.
• Beyond outright system sales, IMAX is a multiplex darling with its joint venture deals.