Vancouver: In a surprise announcement this week, Rainmaker Entertainment Group of Vancouver said it is ‘in discussions’ to sell Vancouver-based Pacific Motion Pictures after owning it only nine months.

While Rainmaker maintains that no sale of the production subsidiary is imminent and no negotiations are underway with a potential purchaser, the company took the unusually bold step to admit that a completed sale would have ‘material negative impact on its financial results’ because it would be sold at a loss.

Rainmaker president Bob Scarabelli says the announcement was made to appease the market, which in the past has complained that Rainmaker has not adequately warned investors about pending changes.

At one point on April 14, the day after the announcement, the stock was trading down nine cents at $1.86 per share. Its year low is $1.75 per share and the company’s year high is $4.15 per share.

‘The decision by Rainmaker to sell pmp will require Rainmaker to adjust the carrying value of pmp, and this adjustment [or writedown] will be reflected in the results of operations of Rainmaker for the year ended Dec. 31, 1998,’ stated Rainmaker in a release. ‘The amount of the adjustment has not yet been determined.’

While Scarabelli maintains that pmp was a compatible addition to Rainmaker’s overall corporate vision, he admits that ‘from personal perspectives and expectations, it was not a good fit.’

pmp principal Tony Allard, for one, has been an unhappy voice in Rainmaker’s executive offices and has tendered his resignation as executive vp of Rainmaker as of June 30. (No one from pmp could comment on the prospective sale at press time.)

That unease actually began during the long Rainmaker-pmp courtship, during which there was at least one failed attempt before the two companies actually came together, an outcome that was driven largely by former ceo Bob Cabral, who left Rainmaker last month. Scarabelli denies there is any link between Cabral’s exit and the move to sell pmp.

The acquisition of pmp, meanwhile, was meant to build vertical integration for Rainmaker so that it would begin to own some of the content that it serviced as a post-production facility and film lab.

The abrasive union, however, was further exacerbated by Rainmaker’s protracted lackluster market performance, which has left the share price languishing at the $2-per-share range. And local small-cap entertainment market companies have generally fared poorly, with Lions Gate Entertainment, Mainframe Entertainment and Vidatron Entertainment also being largely overlooked by investors.

‘We’re slowing down the vertical integration,’ says Scarabelli. ‘We’re taking steps closer to our core business. If a sale of pmp goes through, we hope to maintain amicable and strategic partnerships [with pmp and pmp stakeholder Hallmark Entertainment].

‘Scarabelli adds: ‘This is our busiest year we’ve ever had. The company has grown 315% in the four years that we’ve been in business as Rainmaker.’

In reflecting on the new Rainmaker announcement, analyst Jason Zandberg of Pacific International Securities in Vancouver says, ‘Rainmaker appears to be getting back to its roots. What we are seeing perhaps is the conflict between the vision of an ex-ceo [Cabral] and a new company going forward. The general market was always confused by why they bought pmp.’

Zandberg predicts that despite the declaration of Rainmaker that the pmp divestiture will hurt results, investors will maintain a wait-and-see attitude.

Rob Millham, an analyst with Vancouver’s Research Capital, says he was surprised by the pmp news given the short duration of the marriage and concludes that the change will be viewed with confusion by the market.

He maintains that despite Rainmaker making much of the acquisition last year, pmp was a small component that would contribute upwards of $3 million in revenues and $700,000 in profits to the company’s aggregate bottom line.

Millham says the sale of pmp opens the company to questions and speculation.

And among those are takeovers and privatization, both of which Scarabelli dismisses.

Rainmaker, by seeing its share price dwindle, becomes an even more attractive acquisition. A couple of years ago, Rainmaker was rumored to be scouted during Lions Gate Entertainment’s original shopping spree. More likely, Burbank-based Four Media or Hollywood-based Todd-ao – two post-production companies on acquisition trails – are in a position to buy Rainmaker.

On the other hand, in view of the rough ride handed Rainmaker by the markets, a low share price makes it more feasible for the principals of Rainmaker to buy back the company’s shares from the market and take the company private.