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How to buy Technicolor for peanuts

By PETER WHITE

Published: 8 May, 2012

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JP Morgan Chase is about to acquire 29% of Technicolor for what amounts to peanuts - a cash injection of some €158m or something under $205 million. This is for a company that used to bring in sales of $11 billion, but which today is closer to a $4 billion company.

If the current management can finally turn the business around and into the black, then it will be a great investment, but if, as is more likely, the French giant continues to bleed cash, it could turn out to be a waste of $200 million.

But JP Morgan Chase is not a French bank or a government bailout, and it will be a much hard task master than Technicolor has had in the past, and slowly the second largest set top maker in the world is becoming more and more American in its outlook.

But the interesting thing is that Technicolor sold these shares at a premium, which gave it an excuse to halt trading on the stock markets, which in turn gave investors a chance to look again at what had been considered a tired old giant. Unlike the Sony's and Motorola's of this world, the fact that Technicolor is now purely associated with pay TV and Cinema - one business in rude health, the other in slow decline, it is better positioned to finally move to a profitable footing.

An investment vehicle called Jesper Cooperatief was created which will take an existing 1% stake held by JPMorgan Chase and issue a new 72 million shares at €1.60 per share and then conduct a rights issue of 26.9 million more shares at €1.56 per share. Jesper will underwrite 75% of this and it is a 10% premium on a very depressed share price. The deal should be completed between June 27 and July 3.

For a longer analysis of this deal please go to www.rethinkresearch.biz/faultline and request the issue of Faultline wioth this story.

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