Back in November we published our first note on Cinedigm as a play on the digital/3D cinema space and an alternative to larger and more richly-valued stocks like RealD. At the time, though, the lack of a CEO was a major stumbling block for many. The company recently announced that film-industry insider Chris McGurk would be taking the CEO role and joining former AMC Entertainment CEO Peter Brown on the Board of Directors.
Filling this role a bit sooner than we expected is a positive development and comes at a time when the momentum of digital technology in entertainment continues to build. McGurk has a strong history in the film business and was most recently running Overture films (which Liberty Media owned but was not very supportive of) and before that COO of MGM. We have not yet met him but on the surface McGurk brings two things beyond more experience and leadership. The first is lots of relationships with studio executives and talent who are all eager to exploit opportunities in digital. The second is a passion for content production and independent films. The latter is important because if Cinedigm can continue to build on what they’ve started and deliver innovative digital and 3D content into their theater customers, it would give their customers some unique advantages over having “me too” content from the Big Three US theater chains.
The deal between McGurk and Cinedigm looks square. First of all, he purchased $200K of stock at $1.47/share as part of the agreement. In addition to his compensation ($600K salary plus $450K “target” bonus) he has been granted options to buy 4.5 million shares at a weighted average strike price of $2.72. (The breakdown is 1.5m at $1.50, 2.5m at $3.00 and 500K at $5.) Although we don’t expect to see McGurk with holes in his shoes based on the salary and bonus, in order for him to make “real money” the stock has to get well above $3. All in all, a fairly shareholder-friendly structure.
So what might detractors of McGurk come up with? Like many figures in the entertainment business, McGurk will evoke a range of knee-jerk reactions. If one wanted to cast stones it could be said that Overture didn’t become a great success and that at MGM McGurk might not have been either the brains or the brawn behind the enterprise. We’re a lot less interested in industry gossip and will be very attuned to what McGurk both says and does in this new role. He bought some stock coming in and has quite a few options struck at 2x the current stock price.
We’d also note that the interim senior management team at Cinedigm has done quite well since long-time CEO and Founder Bud Mayo retired (he was 69 at the time) in June of last year. During the transition the team may have been a bit capacity constrained but they didn’t drop the ball on anything and McGurk should be able to leverage the existing team and accelerate the development of the company.
If you missed the prior post it provides more background on the company and valuation. The link is above and also in related articles below.
[Disclosures: Cinedigm is a corporate research client of Research 2.0 and some Research 2.0 employees may own positions in the stock at the time of this writing (positions that were owned prior to engaging with Cinedigm.) Additional information about our disclosures and policies can be found on our website on the legal page.]
- Studio veteran Chris McGurk named CEO of digital cinema company Cinedigm (latimesblogs.latimes.com)
- Is it time for Cinedigm? (research2zero.com)