The has been a flurry of news releases this past week that relate to Intertainment Media. Intertainment issued news releases relating to Ortsbo, its Investment in Synchronica and Active Imagine Nation. Significant Synchronica news releases in regard to their own developments. Beginning with their new service, Unity, which incorporates Ortsbo. In addition, Synchronica announced development regarding their agreement with Nokia that impacted Intertainment's investment in the company and may set the course for a buyout offer from Myriad of Synchronica. NewPace Technology, a company recently partnered with Synchronica, has also put out an announcement offering white label RCS service.
The Ortsbo IPO / User Numbers
The most prominent news release was the announcement of the from Intertainment of the IPO structure for Ortsbo,
Intertainment Media Inc. Announces Ortsbo Spin Out Structure. The plan is for Ortsbo not necessarily to be spun out via and IPO but through using an intermediate step of a complete buy out of Ortsbo as a private company, then initialing a reverse takeover of the purchasing company. Simplistically put Ortsbo is bought by another company and then upon listing on an exchange and issues shares the company changes it name to Ortsbo. Intertainment is also looking at listing Ortsbo on the TSX and a senior US exchange. Intertainment will remain listed on the TSX Venture exchange due to assest qualifications.
The company purchasing Ortsbo will be
Capstream Ventures. As noted at
Bloomberg Businessweek, Capstream Ventures was established to
identify and evaluate assets or businesses with a view to complete a qualifying transaction. The company was incorporated in 2011 and is headquartered in Vancouver, Canada. Capstream began trading upon the TSX Venture exchange in December 2011. It is clear that the company was established for the purpose of facilitate the process of spinning out Ortsbo form Intertainment. Below is a copy, as provided through
Sedar of the Capstream IPO.
CAPSTREAM VENTURES INC.
800 – 885 West Georgia Street
Vancouver, BC V6C 3H1
FOR IMMEDIATE RELEASE
Capstream Ventures Inc. Completes Initial Public Offering as a Capital Pool Company
November 29, 2011 – Vancouver, BC
Capstream Ventures Inc. (the “Company”) (TSX-V: CSP.P), a capital pool company, is pleased to announce that on November 29, 2011, it successfully completed its initial public offering (the “IPO”) of 2,000,000 common shares in the capital of the Company at a price of
.10 per common share for gross proceeds of $200,000 (the “Proceeds”).
Union Securities Ltd. acted as agent (the “Agent”) for the IPO. The Company has paid the Agent a cash commission equal to 10% of the Proceeds and granted non-transferable agent’s options (the “Agent’s Options”) to purchase 200,000 common shares of the Company at a price of
.10 per share. The Agent’s Options are exercisable for a period of 24 months from the date of the Company’s initial listing on the TSX Venture Exchange (the “Exchange”). The Agent also received a corporate finance fee of $10,000 plus HST.
The Company also granted to its directors and officers incentive stock options to acquire 420,000 common shares (“Shares”) at a price of
.10 per share, exercisable for a period of ten years from the date the Company’s shares are listed on the Exchange.
The Company is a capital pool company within the meaning of the policies of the Exchange. The Company has not commenced operations and has no assets other than cash. The Company intends to use the net proceeds of the IPO to identify and evaluate potential Qualifying Transactions in accordance with the polices of the Exchange.
The Company expects its common shares will begin trading on the Exchange on December 2, 2011 under the trading symbol “CSP.P”.
On behalf of the board of directors of
CAPSTREAM VENTURES INC.
Robert Thast
Chief Executive Officer, Corporate
Secretary and Director
In order for the Capstream purchase of Ortsbo to go through, a private placement is considered to be necessary for the qualifying transaction to proceed. A definition of a qualifying transaction as provided from
Investopedia is as follows.
A type of transaction that occurs when a company issues public stock in Canada. A qualifying transaction occurs when a qualified Capital Pool Company (CPC) purchases all of the outstanding shares of a privately-owned company from the current shareholders. The private company then becomes a fully-owned subsidiary of the CPC.
The private placement is priced at $7.00 per share for a realization of 30,000,000 but with no maximum.
However, The private placement must be for a minimum of $4.67 per share for a realization of $20,100,000.
As part of the private placement each participant will receive one Ortsbo Share and one-half of one common share purchase warrant of Ortsbo.
Upon the closing of the Transaction, the Ortsbo Shares and Ortsbo Warrants will convert into Capstream Shares and Capstream common share purchase warrants.
Once the private placement goes through the following is to occur in terms of distribution of share ownership. Breaking it down:
- Capstream does a share consolidation of their own shares at 14 for 1. With 7,864,800 shares outstanding divided by 14 leaves 561,771 shares.
- Capstream then issues 30,000,000 shares at a price of $7.00.
- 2,100,000 shares are then issued to Ortsbo share holders.
- The remaining 9,900,000 shares are issued to Intertainment share holders on a pro rata basis (dividend) (a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns). The dividend being 3% of of the total shares held by each individual shareholder, 9,900,000 / 322,000,000 (current INT shares).
In connection with the Transaction, the parties are investigating the process of listing the common shares of the resulting entity on a senior exchange in Canada and a potential dual listing on a senior exchange in the US following the completion of the Transaction.
The plan is further spoken to by Intertainment in the CanTech Letter interview,
Intertainment CEO David Lucatch talks Ortsbo Spinoff, during which David Lucatch spoke to the IPO structure. Some segments are provided below.
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.
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. ....
We are also providing shareholders, as of the record date forthcoming with a distribution of 33% of the pre-financing value of $210 Million.
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.
Announcement of the Ortsbo spinout plans was reported upon in the media with comments about the process, as presented by the Canadian Press, and appearing in the
Winnipeg Free Press:
To do the deal, Capstream must consolidate its shares on a 14-for-one basis, then acquire Ortsbo for 30 million of those shares valued at $7 each — for a total value of about $210 million. Capstream is expected to then change its name to Ortsbo.
After the deal, current Ortsbo security holders will hold 57.8 per cent, Intertainment security holders will hold 28.4 per cent and subscribers under a private placement will hold 12.3 per cent. Current shareholders of Capstream will hold 1.6 per cent.
Instead of a straight initial public offering (IPO), Intertainment Media has elected to spin out and list Ortsbo through a backdoor transaction with a listed capital pool company (CPC).
The proposed transaction will constitute as Qualifying Transaction (QT) for Capstream.
A
recent Salman Partners analyst report on Intertainment placed a value upon Ortsbo of 10.00 per user. The analyst employed a metric value per user, which is the market cap divided by user numbers. At the time of the report Ortsbo's user numbers from November 2011 were used and a value of $5.26 per user was arrived at.
Based on the metric value per user (defined as market capitalization divided by the number of users), we believe Intertainment is cheap. We estimate that the company’s current value per user is at $5.26, whereas its peers trade at much higher levels: $20.78 for Pandora, $32.88 for Zynga, $90.77 for LinkedIn, $90.99 for Groupon and $108.82 for Facebook. Based on a ten-year, four-stage discounted cash flow analysis, we estimate that Ortsbo alone is worth approximately $10.00 per user, or $1.24 per Intertainment share.
The second news release form Intertainment,
Ortsbo Eclipses 107 Million Unique Users 167% Increase Since November 2011, reported the growth in user numbers. From January 25, 2012 to February 23, 2012 the numbers are reported in comparison to those of the last reporting in November 2011.
Online Sessions: 125,115,373Up 122% since November 2011
Page Views: 320,594,970Up 133% since November 2011
Unique Users: 107,771,092Up 167% since November 2011
Minutes of User Engagement: 546,892,514Up 91% since November 2011
With the release of updated unique user number for Ortsbo, 107,771,092 the Salman Partners per user value can be adjusted upward toward 7.22 per user following the same per user metric. Current market capitalization as of close March 1, 2012 being 216,032,756 / unique users 107,771,092 = 72,206,632 or $7.22 per user value. A figure which is slightly above the targeted IPO price of Capstream (Ortsbo) shares announced in the IPO plan.
The complexity of the plan, which is essentially a reverse takeover, requiring some effort to makes sense of may have place downward pressure upon Intertainment stock. However, it is forwarded here that the scuttling of the Intertainment investment in Synchonica is more of a factor resulting in downward pressure. Simply due to the level of integration of the Ortsbo into the Synchronica's Unity platform and potential for complimentary growth for both companies, as discussed below.
Also of note from the news release announcing updated user numbers emerge the regions of fastest user growth; China, South Korea, Hong Kong and Japan and the correlation between growth and recent Live & Global events; Live & Global events with Disney and the Avengers Assemble Movie, Dreamworks Warhorse and Steven Spielberg, the Variety CES Summit, Variety and The Sundance Film Festival featuring Stan Lee and Gene Simmons and live coverage of the red carpet at the 2012 BAFTA Awards in London. Lending weight to the significance of the Live & Global platform for contributing to user engagement with Ortsbo.
Along with the user numbers, Jacqueline Saltzer-Lamb was announced as the new Vice President of Executive & Corporate Communications for Ortsbo, who in this role will be responsible for Ortsbo's worldwide communications. Previously Director of Global Product and Communications at eBay, she has also acted in the role of Managing Director of Employee Communications at Charles Schwab and comes with an extensive background in strategic, corporate, and executive communications.
Synchronica's Geo Socialization & Intertainment
Synchronica released the Unity suite early in the week at the 2012 Mobile World Congress and the integration of Ortsbo into their social media suite of products for the mobile market. A unique service introduced through that announcement was their geo socialization service. A service they added value to when in a second news release,
Synchronica Boosts New Geo Socialization Segment with uChat, announced the integration of uChat with their geo socialization platform, being made available as a white label product.
First Geo Socialization product, Synchronica uChat, blends messaging and location functionality to extend the user's social circle by delivering dynamic, one-to-one or group chat, based on current location or nearby points of interest.
This announcement may have been lost in the flurry of developments seen through the week and its potential to the growth of Intertainment's offerings overlooked. There should be benefit to Ortsbo through the growth of user numbers, exponentially, as Synchronica rolls out Unity throughout its current contracted network of mobile device manufactures. More importantly, the application of the geo socialization product is not solely to the benefit of Ortsbo, but also to AdTaffy. Keeping in mind the recent announcement of Intertainment's investment partnership with ShinyAds, discussed in the post
Carving Out A Niche: Intertainment strategy for Ortsbo. Geo socialization provides the end user with the ability to flow in and out of social media on the move and interact with their surrounding in real time through social media. For marketers it allows them to precisely target the user in the moment. This is a concept that builds from the technology of Commobility Inc., bought by Intertainment in 2011, as discussed in
Intertainment Media & Commobility Inc: Exploring the links.
According to the information within the news releases of the time, Proximity Interactive Networks was a national network infrastructure provider that delivers relevant content and communications to mobile handsets through its PinSpot brand. Pinspot was set up to deliver mobile content, mobile advertising (static and video) SMS, VoiP, email, and other data, primarily using Bluetooth and WiFi technology and a nationally targeted mobile services provider.
Should Synchronica establish itself as a leader in the next wave of mobile social media and marketing, the technology of Ortsbo and Intertainment Media as a whole will also be propelled into the forefront.
The proposed collaboration agreement between the two companies will enable NewPace's Rich Communication Suite of products to be extended to Synchronica's growing list of worldwide clients. Synchronica's client base extends to more than 100 mobile operators and device manufacturers globally.
Under the collaboration agreement, NewPace will license its current and future RCS technology to Synchronica, who will be responsible for marketing and sales of the products and technology. The two groups will collaborate to create a joint product and sales roadmap.
Rich Communication Suite (RCS) is a mobile industry standards effort led by the GSM Association (GSMA) that unifies communication by combining voice, presence, status, instant messaging/texting, buddy lists, media sharing, conferencing and video chat into one service on a mobile handset without the need for third-party software and downloads. The customer facing RCS product was newly branded at the conference -- ‘joyn’. The NewPace solution provides network operators the ability to deploy the joyn service using a hosted product.
The RCS/joyn platform is designed to allow end-users the ability to use enhanced messaging options with one another regardless of phone type or mobile carrier. This framework will provide increasingly advanced services for mobile carriers to offer to their customers.
The NewPace solution is the first to operate without the requirement of an IMS core. The IMS core is an expensive and costly infrastructure that many mobile operators are reluctant to implement, and has been an identified barrier in RCS implementation to date. In addition to meeting the initial launch needs set by the GSMA, the NewPace solution features anticipated requirements that include integration with over the top instant messaging services and social networks, billing interfaces, operator interconnectivity, reporting, legal intercept and operations, administration, monitoring and provisioning.
Synchronica's solution is based on technology from NewPace and follows last week's announcement of a partnership deal between the two companies for the development, sales and marketing of NewPace's RCS platform.
By using Synchronica's hosted RCS service, mobile operators can avoid the need to implement their own, costly IMS core network and can instead undertake a more cost-effective and accelerated roll out to subscribers. Synchronica RCS as a Service also allows groups of mobile operators in one country to benefit from a 'joined up' RCS experience, irrespective of whether they have all deployed an IMS core, by launching their services simultaneously to enable cross-network messaging between subscribers. Synchronica's service, which is fully controllable by the mobile operator, provides a viable safeguard to competitive threats from the OTT direct-to-user players such as WhatsApp and Google.
While Synchronica bolstered its social media offerings for device manufactures and network operators through Unity, they have also developed a backend hosting solution in partnership with NewPace. Likely with the aim of developing a vertically integrated company model in preparation for the next wave of mobile social media developments in emerging and established markets.
As Synchronica is reducing barriers between hardware and software in the realm of social media, Intertainment is playing an integral part of increasing user engagement through the technology of Ortsbo and mobile marketing technologies. The fit between between the two companies is easy to see as each compliments the other in facilitating exponential growth opportunities for each. Furthermore, the partnership that Intertainment has forged with Synchronica opens up vast opportunity for Intertainment to bring to maturity Ortsbo, AdTaffy and possibly other product offerings. For these software services will have instant end user access via the Unity platform.
Intertainment Investment in Synchronica
A concern arises that the companies are such a good fit for each other that there may be a dependancy upon each other. It would not have been unreasonable to suggest that the two companies might in some fashion merge in the future. However, this being prior to the news released by Synchronica
recent developments arising from Synchronica's deal with Nokia. One which has resulted in Synchronica having to back out of the potential investment in the company by Intertainment.
The deferred consideration agreement with Nokia, relating to Synchronica's purchase of Nokia's operator branded messaging business in July 2011, contained a clause which provided for any additional funds from any equity or debt financing above a threshold of US $5m to be applied to the payment of the outstanding deferred consideration. The Synchronica Board believed that this threshold would be applied equally to additional equity or debt. Yesterday, Nokia clarified that in its view the threshold applied only to debt and that therefore any amount of additional equity may, at Nokia's discretion, need to be applied to the repayment of deferred consideration. Whilst Nokia did not say that it categorically intended to apply this clause, the Synchronica Board believe that it would not be able to take such a risk on behalf of shareholders. Consequently, Synchronica wishes to inform its shareholders that it no longer intends to seek approval for an investment by Intertainment Media. Shareholders should note that this will be a key consideration for the Board in deciding upon what advice to provide to shareholders.
The partnership between Intertianment Media and Synchronica remains in tact. The Intertainment Media news release of March 2, 2012 updating the relationship between the two companies confirmed this. It also saw Intertainment issued support for a Myriad takeover of Synchronica, as noted below.
The Letter of Intent also provided a provision whereby the parties had agreed, subject to due diligence, to a potential CDN $10 Million investment by Intertainment Media into Synchronica by way of a private placement. Intertainment together with investment partners, who were interested in a minimum of CDN $5 Million of the total placement, were potentially prepared to move forward with this investment. Intertainment informed Synchonica that this placement would only move forward once the current take over discussions with Myriad Group were voted on by its shareholders.
Upon further discussion with Synchronica and Myriad Group, Intertainment has decided at this time to hold off any potential investment by way of a private placement. Intertainment feels that this position is in the best interest of Intertainment and Synchronica shareholders. At this time Intertainment also feels that Myriad's offer and direct financial support provides the best solution for the long-term success of Synchronica.
Intertainment and Synchronica will continue to work together to develop new initiatives, and Intertainment is confident, that should Myriad Group be successful in its endeavors to acquire Synchronica, it will be "business as usual" and the parties will work to develop leading solutions for a global, mobile market.
With the cancellation of an Intertainment investment in Synchronica, one might not be so confident to suggest a merger between Intertainment and Synchronica at this time. The development is clearly tied to the Myriad bid for Synchronica, which had been refuted by Synchronica management. However, the company will be issuing guidance to its shareholders later this month. The Myriad bid for Synchronica is examined more thoroughly in an upcoming post.
Intertainment & Active ImageNation
Cap That™, a patent pending technology platform that allows consumers, studios and professionals to capture and manipulate video, creating images that can be shared socially and commercially printed on demand on a wide variety of products directly through Cap That™, as well as proprietary channel partners and licensees.
The deal was finalized last month per the news release which noted,
On February 23, 2012, Intertainment Media closed the acquisition of 342,466 Class B preferred shares (the "Purchased Shares") of Active ImageNation Inc. ("AIN") at a price of USD$5.84 per share. In terms of devloping the technology it is expected that the CapThat platform will be moving out of beta testing in March 2012. The company announced,
Closed beta trials of the platform are currently underway and a public release of its beta platform is scheduled for March 2012 at www.capthat.com. This investment is an effort to push forward Intertainment's printing division, Magnum, as outlined in the
initial announcement of the deal with Active ImageNation.
Under the terms of the investment, Intertainment's graphic services division, Magnum, will be afforded Rights of First Refusal to develop AIN's product programs allowing consumers and commercial clients to purchase custom printed products directly from Magnum using the Cap That™ technology.
All told Intertainment is continuing to guide their products to maturity building relationships with synergetic companies, while Ortsbo Inc. is being prepped to enter the market as an entity in its own right.