public procession

Nelvana is joining the roster of major Canadian production companies which have gone public.

In a preliminary prospectus filed with the Ontario Securities Commission March 18, Nelvana, Canada’s largest producer of animated television shows, outlines plans for an initial public offering expected in May and no later than July 31. However, the prospectus goes well beyond detailing the financial and other repercussions of issuing shares and obtaining a stock trading symbol. It also lists several major projects in development for production or coproduction by or through the company.

Nelvana is the sixth production company to go to the stock market in less than a year. The trend began with Paragon Entertainment last June. The other four gone public since are Alliance Communications, Atlantis Communications, Cinar Films and Malofilm Communications.

The preliminary prospectus says the stock offering will consist of 2,022,224 subordinate voting shares, of which 1,666,667 will be issued by the company and the remaining 355,557 will be issued by Nelvana’s founder/principals, director and chairman Michael Hirsh, director and president Patrick Loubert and director and executive vice-president Clive Smith (also president of Bear Spots). After the offering, these three men will retain 84.9% voting control through multiple voting shares.

The prospectus says Nelvana will use about 40% of the money generated through the share offering to expand its program and character rights library, about 25% for expansion into related business areas and about 10% to upgrade computer systems and ‘to finance the acquisition of new digital production technology including a computer ink and paint system.’ Remaining funds will go to pay off a $600,000 loan from a Canadian trust company and to be used as working capital to boost program production.

Reporting 1993 net earnings of $2,184,000 on total revenues of $31,320,000, Nelvana lists earnings per share of 65 cents in that year. It forecasts 1994 revenues of $52,850,000 and earnings per share of 83 cents.

Roger Dent, a special situations analyst with Wood Gundy in Toronto, says the market has not been saturated by entertainment companies, although he cautions that the ‘market for initial public offerings is not as receptive as it was six months ago.’ He adds that this has nothing to do with entertainment stocks and is true of the market in general.

Dent goes on to say that investors will, for the most part, compare Nelvana’s offering with Cinar’s because they have animation and youth programming in common. One advantage for Nelvana, he says, is its merchandising activity. Nelvana says it set up Nelvana Marketing in 1990 to look after merchandising and licensing. The consolidated financial statement in the prospectus reports Nelvana’s 1993 revenue from merchandising at $4,055,000 and forecasts that figure will rise to $4,700,000 in 1994.

Dent says a possible disadvantage for Nelvana, compared with Cinar, is that Nelvana does a lot of service production. ‘Investors in this business are buying the library and the future libraries,’ he says, adding that investors are keen to see what product the company will have to offer the information highway.

Compare with Cinar

Overall, however, Dent says he doubts Nelvana will have any trouble attracting investors so long as its shares are priced ‘reasonably.’

In the industry overview in the prospectus, the company projects rapid growth in the ‘market for family television and film entertainment…due to favourably shifting demographics, the global proliferation of specialty television channels and the increase in use of home videos.’

The overview also points out that the u.s. is the largest world market for animation. The company’s business strategy says 61% of its 1993 revenues came from the u.s., with 8% from Canada and 31% from other countries.

The business strategy also notes that Nelvana is using ‘third party owned’ computers to color about one-third of its productions. Furthermore, the strategy says the company ‘will attempt to exploit’ new media such as cd-rom and cd-i, interactive tv and virtual reality. With a view to expansion, Nelvana has a 27.5% interest (worth about $300,000 in investment) in the Fun TV The Animation Network specialty application before the crtc. It is also considering buying or investing in an animation studio – no location is named – or buying or building a comic book publishing business.

Well-known titles from Nelvana include Babar, Beetlejuice, The Care Bears, Jim Henson’s Dog City, Eek the Cat, Family Dog, Fievel’s American Tails, Rupert and The Adventures of Tintin. For the 1993/94 season, Nelvana is pumping five animated tv series into u.s. networks (plus one Christmas special); for the 1994/95 season, u.s. broadcasters will carry five shows of eight or more episodes each, plus four episodes of The Terrible Thunderlizards.

Among the long list of its titles over the years, Nelvana has produced several animated features and live-action series and is working on several more live-action and animated series. It has had a hand in live-action features such as Burglar (1987) and Malice (??) and is involved in creative development and production of the ‘first of Nelvana’s slate of animated feature films for Paramount Pictures,’ including The Sign of the Seahorse, based on the book by Graeme Base, Mask Vision, and Trumpeter and the Swan, based on a book by E.B. White. Through its subsidiary Bear Spots, the company produces animation for commercials and, in 1993, produced all the animated sequences for the imax/Omnimax film Journey to the Planets.