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Friday, Jun 2, 2023

MGM Buyout Could Fix Tix

Tix Corp. has emerged as an acquisition target for one of the largest players on the Las Vegas Strip. The Studio City discount ticket seller for shows, dinners, tours and other activities in Las Vegas received in July a letter from MGM Resorts International expressing that company’s interest in doing a deal. “We believe that we have offered you a compelling opportunity to explore a transaction with MGM Resorts and we are concerned that your response to date does not enable us to proceed with open, fair and transparent discussions,” the letter from MGM Resorts President Bill Hornbuckle said. That letter created a flurry of activity, including prodding by a major shareholder for the company to negotiate a sale to MGM and for another shareholder to declare he had activated a “poison pill” provision of the company’s bylaws. Attempts to reach representatives of Tix and MGM Resorts were not successful. But in a release from July 19, the company stated that it had been in discussions with MGM Resorts and had interest to continue the dialogue. It cautioned there was no assurance the discussions would result in an acquisition. “The company has always been open to any transaction that maximizes value for all shareholders,” the release said. “While management and the board of directors remain focused on efficiently running the business, we will evaluate all potential transactions and take actions that are in the best interests of all shareholders.” While based in the San Fernando Valley, the company’s operations are all in Sin City where it has nine kiosks under its Tix4Tonight subsidiary selling tickets for up to 50 percent off to shows, concerts and other attractions, as well as discount dining and shopping offers. Last year, the company began offering its tickets online and through mobile devices. As of Dec. 31, 2017, the company had 110 full and part-time employees. Tix had been listed on the Nasdaq until 2010 when it deregistered its shares with the Securities and Exchange Commission and moved to the over-the-counter market. For the first quarter, the company reported a widening net loss as its revenue decreased. It reported in May a net loss of $717,000 (-4 cents a share) on revenue of $3.1 million for the quarter ending March 31. That compares to a net loss of $58,000 (0 cents) on revenue of $4.3 million in the same period a year earlier. Tix attributed the decrease in revenue to “increased aggressive competition from online ticket sellers, show producers and hotel properties,” in a release accompanying the quarterly earnings. Competitors include MGM, which opened its own discount ticket booths at its hotels in Vegas in September and restricted Tix’s ability to sell certain Cirque du Soleil tickets. Also, Las Vegas experienced a sustained decline in tourism following the Oct. 1 mass shooting during a concert that killed 58 people. Tix still sells tickets to Cirque’s “Mystere” show, which is performed at the Treasure Island Hotel & Casino and not owned by MGM. Trading volume of Tix stock spiked temporarily on the news of the discussions with MGM before settling down again. Tix shares closed Aug. 1 at 44 cents and a volume of 200 on the over-the-counter market. Disgruntled shareholder Haren Bhakt is an investor in Tix through his firm HSB Capital Partners in Santa Ana; he owns about 5 percent of the company. He believes that shareholders in Tix have been “shafted” by an entrenched management and board. Bhakta was upset, for example, how the top three executives – Chief Executive Mitch Francis, Chief Operating Officer Kimberly Simon and Chief Financial Officer Steve Handy – received nearly $900,000 in bonuses in 2016, a year when both revenue and net profit declined. While apparently MGM Resorts has been interested in buying Tix for some time, the management did not let shareholders know about it, Bhakta believed. “They have made no management changes; they have made no board changes,” he added. “They have done nothing for shareholders.” Jeff Gramm, portfolio manager at Bandera Partners LLC, a hedge fund based in New York that has a 15 percent stake in Tix, backs the acquisition attempt by MGM. In a letter sent to the Tix board on July 18, Gramm encouraged it to hold discussions with MGM about a potential deal. “We believe that negotiating a sale to MGM is in the best interests of the company’s stockholders and, as such, we were disappointed to learn that, to date, MGM feels that Tix has failed to engage in meaningful discussions regarding a value-maximizing transaction,” Gramm wrote in the letter. Like Bandera’s Gramm, Bhakta supports the acquisition by MGM Resorts. “Clearly they have a valid business model because MGM wants to acquire them,” Bhakta said. There is no deadline set for when discussions between Tix and MGM would wrap up. In an email to both companies, Bhakta speculated that MGM would have no problem paying $2.50 per Tix share given that it would have a “de facto monopoly” on the Strip given the limited number of discount ticket locations there. Plus, the company would benefit by additional visitors to its hotels and casinos. “This would equate to about $44 (million) or $50 (million) with some severance expenses,” Bhakta wrote in the email. “A small price to pay for controlling the Strip’s limited locations.” Pill question But Tix and Bhakta are also at odds over whether the investor has invoked a “poison pill” provision in the company’s bylaws. On July 23, Tix put out a press release about how Bhakta claimed to trigger the company’s shareholder rights plan, or “poison pill” provision. The plan was passed in 2011 and amended last year to limit the acquisition of more than 4.95 percent of its outstanding shares. Any purchase above that amount triggers the plan, which allows all other shareholders to buy company stock at a reduced price. The company said that Bhakta had “no comprehension of how a shareholder rights plan operates” and that correspondences from him about triggering the plan were “illogical.” “No shareholder would ever deliberately trip a poison pill because their entire investment could be virtually wiped out,” the company said in the release. Bhakta told the Business Journal he still believes he tripped the rights plan and that he would take just a small hit with dilution of the shares. Additionally, it would give two of the largest outside shareholders – Bandera and Boston Avenue Capital LLC in Tulsa, Okla. – an opportunity to increase their proportion of shares, he added. Bhakta also said that he requested an exemption, as allowed under company bylaws, to buy more than 4.95 percent of shares but was rejected. Jonathan Hodes, a lawyer in the Sherman Oaks office of Stubbs Alderton & Markiles LLP, explained that “poison pills” are done to prevent or deter a hostile takeover of a company. Versions of such plans include creating an employee stock plan that vests after a takeover; giving shareholders the right to purchase additional shares at a reduced price if a takeover is attempted; permitting a company take on large debt to make itself unappealing; and offering golden parachutes to executives to make replacing the board expensive after an acquisition. “There are all kinds of variations, but those are the most common ones,” Hodes said. Benefits of a “poison pill” include giving a board facing a hostile takeover time to find another bidder for the company; and giving bargaining leverage to negotiate with the acquiring company to avoid activating the pill. “There are weaknesses as well,” Hodes continued. “Stock values get diluted, which is a weakness of the pill. Oftentimes institutions that want to invest in companies don’t like poison pills. Institutions are the largest investors and companies can lose the opportunity to get those investors in if they have a poison pill.” In its release, Tix accused Bhakta of going to Tix ticket stands last year and harassing the employees by photographing them and trying to get non-public information about the company, among other behavior. “He has repeatedly caused a great deal of unnecessary distraction for Tix management and employees,” the release said. Bhakta denied that he harassed the employees. The first time he went to a Tix location he asked employees if they had ever met Francis or Simon. That time he had also made a ticket purchase, Bhakta said, adding that none of the employees had ever met Francis and only met Simon once or twice. “The second time they found out who I was, and management found out who I was, and they told them to tell me to leave and I left,” Bhakta continued. “That is all that happened. There was no harassment.”

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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