Intertainment Media (TSXV:INT) today announced the details of a plan to spin off its real-time translation offering, Ortsbo.
As far back as November of last year, management said it felt Ortsbo’s growth would be accelerated as independently listed company, and that current Intertainment shareholders would benefit from the spin out should Intertainment maintain a significant stake in this new listing. Today, we have a lot more information about what form that entity will take.
Intertainment CEO David Lucatch clearly thinks Ortsbo deserves at least a mention in the same breath as US social media players such as popular user review site Yelp, which receives approximately 60 million unique visitors per month, social network game maker Zynga, which has 148 million, and online real estate company Zillow, which has 24.2 million. Intertainment has not announced monthly numbers on Ortsbo in some time, but it is safe to say the growth trajectory puts them well above the forty million unique monthly users they reported in October.
Cantech Letter caught up with David Lucatch by phone from Los Angeles this morning to talk about the spinoff of Ortsbo.
David, we now have details on how you plan to spin out Intertainment’s Ortsbo division. Why are you taking it public through a reverse take-over of a Capital Pool Corporation rather than an IPO?
Nick, we feel it is the most cost effective solution for shareholders at this time, and allows us the flexibility to move forward and grow the company quickly. The end result is the same as an IPO with what we believe is a significant savings in time and resources and gives Intertainment more control over the process than with an IPO.
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Does this mean you won’t be seeking a more senior listing?
Quite the contrary, as we are focused on a senior listing, and again, this process, we believe, is a quicker route to that as we are intending to bypass the junior listing and go right to a senior listing and then look to list on a senior US Exchange.
A price of $7 a share on Ortsbo gives the company a $210 pre-financing valuation. When you look at the most immediate comparables, do you feel Ortsbo is worth that number?
We personally believe it is potentially worth significantly more in the long run. We have a US investment firm who that has indicated they will provide a lead order of $20 Million for the financing. This was announced some time ago and we feel that we should honor that commitment. As this financing will be open to accredited investors, we feel that the pre-financing value of $210 Million, while a discount to what we believe is the open market price for Ortsbo, that should, in our opinion, be best decided by the market when Ortsbo is listed as a separate company. If we are correct, the market should potentially view Ortsbo in the same light as our US counterparts and provide potentially parity of value.
What does this mean for current shareholders of Intertainment Media?
Well, before the spin out, current accounting rules simply prevented us from recognizing that Ortsbo had any value at all on our balance sheet. On the books we simply had to peg the value of this important asset at zero. The day that Ortsbo is effectively sold, our significant piece can be recognized on the balance sheet and can grow with the market value, increasing the overall value of Intertainment Media substantially. In addition, the market securities of Ortsbo can be used potentially for future dividends, investment into new and exciting technologies and other approved endeavors. We are also providing shareholders, as of the record date forthcoming with a distribution of 33% of the pre-financing value of $210 Million. I’m not sure I can recall a small –cap, TSX Venture listed technology company doing that in the recent past. We originally announced up to 20% and then up to 30%, but the cost savings from spin out allows us to provide additional distribution value to our loyal shareholders.
How much of Ortsbo will Intertatainment own?
Intertainment and the Ortsbo subsidiary will effectively retain 67% of newly listed Ortsbo, pre-financing. Again, the balance of the pre-financing value, being 33% is going right back to our shareholders.
What will the structure of this new independent entity look like? Are you going to remain involved?
The structure will be an independently publicly listed Company with its own management and board of directors. As we take Ortsbo through the public listing stage, I am going to remain on as CEO and we will see what happens beyond that. Patrick Bultema will continue his role; he is currently interim President of Ortsbo and we are eager to define that role further. Our other management members and the board will be announced shortly and I believe that shareholders will be very impressed with the team we are assembling. Ortsbo is going to continue to focus on growth and the development of new technologies with a strong view towards long term revenue, similar to the models of some of the major social media players in the US.