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Premier Exhibition (PRXI) update: Jan 2012

January 4, 2012

Just before Christmas Premier announced that they will be auctioning off their Titanic salvage artifacts. The sale will take place through Guernsey’s on the 100th anniversary of the sinking of the ship, April 2012. You can read the press release here.

I view this as a step in the right direction for shareholders. Management has finally capitulated, acknowledging that full value of the artifacts cannot be realized though their exhibition operations alone. I’m tipping my hat to the Sellers people for forcing this on management.

Let’s look at what the auction might raise for Premier. The press release quotes an appraised value of at least $189 million for the artifacts. (In my original analysis I gave the artifacts a value of $145 pre-tax) We’ll look at two scenario’s. For Scenario I I’ll assume Premier receives the full appraised value adjusted for inflation and round the number off to $200 million. For Scenario II I’ll assume that they only receive 50% of the inflation adjusted appraised value, or $100 million. I don’t really have any insight into what they might realize so this is just a stab in the dark.

Value of Titanic artifacts to be sold (in millions except per share data)

Scenario I Scenario II
Auction price $200.0 $100.0
  commission at 8% ($16.0) ($8.0)
Net after commission $184.0 $92.0
tax at 35% ($64.4) ($32.2)
Net after tax $119.6 $59.8
Shares outstanding* 52.5 52.5
Cash value per share $2.28 $1.14

The commission rate above is the one quoted in the agreement with Guernsey’s, attached to the 8K. There may be some additional advertising, insurance or other expenses associated with the auction but I will assume they are minimal. I have assumed a full load of taxes, which may or may not be the case, as they might be offset by tax loss carryforwards, if there are any at the corporate level, or by expenditures associated with securing the artifacts, if these have not been previously realized. Furthermore, I have assumed, worst case, that shares outstanding have been inflated by the full amount of the Lincoln Capital share raise, which may or may not have taken place; the agreement and prospectus had been previously filed but not necessarily consumated (I haven’t seen any SEC filing but I’m not sure one is needed).

At minimum, however, we should see value flowing to Premier (if not to us shareholders directly) of between $1.14 and $2.28 per share with the sale of the artifacts. This isn’t too bad on a current post-announcement share price of $2.45. Note that in my original analysis I used a per-share value for the entire company of about $4.50 which included components not included above, such as the value of the digital archives relating to the Titanic discovery, theTitanic salvage rights, the exhibition business itself and any cash on the balance sheet.

While I’m not convinced that the full $4.50 per share will ever be realized by shareholders, I think that the current share price of $2.45 still discounts the company’s assets too steeply.  So I will continue to hold my shares at least until favorable tax treatment kicks in (just about a month to go) and the discount to intrinsic value narrows substantially.


From → Positions Closed

  1. It seems you haven’t taken into account the CEO’s payout then again the payout is contingent on how much the artifacts sell for. It’s good to see you are blogging again.

  2. eclectic value

    Thanks for the comment. You’re right that I did leave out the contingent payout; I had kind of forgotten about it and now can’t seem to find the details. Do you have them handy? Would be appreciated by me and any other poor soul who might read this.


  3. You are assuming that nothing of the $200m auction value was priced into the share price before the annoucement in late December. That seems unrealistic, because the public or at least some informed people knoew before the announcement that the company owns these artificants and that they may be monetized. Any thoughts on how this? Also, management confirmed today on the earnings call that they intend to distribute a “significant amount” of the proceeds to shareholders. We already got a c. 40% increase from the auction announcement. I think key questions are: what’s going on with the insiders? Wouldn’t they be buying like crazy if they thought they would receive 200m and then distribute as a special dividend to shareholders? What is the probability of the auction being successful? Also, it seems they may want to keep the exhibiting the artifacts after they are sold. How much would this potentially cost? Is there any value to this company without these artifacts?

    • NT,
      Since it was public knowledge that the Titanic assets were assigned to PRXI as of the August’11 court decision I have to agree with you that this was priced into the shares back in November. What wasn’t priced in was how PRXI intended to monetized the Titanic assets. I think the 40% pop on the auction announcement was due the the fact that value of the artifacts will be realized in a defined timeframe, i.e. the uncertainty has been reduced. Regarding the return of capital after the auction, it is no secret that Sellers Capital (owners of 46% of the outstanding shares) would like to liquidate their position, so this is a perfect solution. And as to why other insiders aren’t buying hand over foot, well, insiders can’t just buy anytime they want; for example, if the company has more information regarding potential bidders and valuations than has currently been made public (which is likely), insiders wouldn’t be allowed to buy. Then, of course, uncertainty as to the timing of value realization has been reduced, but the exact amount of the value that will be realized and whether the auction will even be successful is obviously still not clear. I certainly don’t know if the auction will be successful or what might be realized, but I do think there is a good chance that the value after the auction wil be greater than it is at this point, though I won’t be buying more shares, so I’m hanging on to see what happens.


  4. Taylor permalink


    In a past conference call, I remember management saying that the cost basis of the artifacts was around $40m. This could serve to reduce the tax obligations significantly.


    • Taylor,
      In the latest 10Q Premier shows only $3 million in artifact ‘assets’ on the balance sheet. If expenses associated with retrieving the Titanic assets had been capitalized they should be reflected in an asset accout on the balace sheet which I don’t see (to the extent that $3 million isn’t $40 million). This capitalized asset would then represent the cost basis for the artifacts when sold. If, however, as I suspect, that expenses associated with retrieving the Titanic assets were expensed as incurred then they either sheltered then-current income or created operating loss carryforwards which will be applied to the capital gains when and if the assets are sold. I could be wrong about this because tax accounting is different from GAAP accounting, but I also don’t see any deferred tax assets on the balance sheet. I guess what I am saying is that, barring any clear statement to the contrary, I would assume a full tax burden on the Titanic assets when sold.

      Thanks for the comment.


  5. Taylor permalink

    I noticed that too. I found the transcript that I was referring to. Scroll down to Jason Braswell’s question regarding the cost basis of the artifacts. Sam Weiser does indeed say that the basis is $40m. I’m not sure why it isn’t reflected in the balance sheet though. Am I reading this correctly?


  6. Taylor,
    thanks for the link. Yes I see what he said, and the $40 million seems to refer to the cost basis of the artifacts even if the language isn’t exactly clear. I’m also interested in what he said about the $110 million payment in lieu of the artifacts (if the court had opted for an auction and payment in cash instead of the ‘in specie’ award) being treated as ordinary income. I had thought any payment would be treated as capital gains. Perhaps this is the reason management preferred the ‘in specie’ award so that realization of the value would be treated as a capital gain. My hope, anyway. Its all a bit murky I must say. My salvage tax accounting is just not up to snuff obviously!

    But let’s not lose sight of the main thing here: how much the artifacts actually bring at auction. That’s what really counts. I’ll leave it to mgmt to figure out the best tax treatment.

    Happy holding until April!


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