DALLAS, Nov. 15, 2022 (GLOBE NEWSWIRE) — Railroad Ranch Capital Management, LP (together with its affiliates, “Railroad Ranch”, “we” or “our”), a major shareholder of Thunderbird Entertainment Group Inc. (TSXV : TBRD) (“Thunderbird” or the “Company”) with beneficial ownership of approximately 6.9% of the Company’s outstanding shares today expressed its support for Voss Capital, LLC (“Voss Capital”)’s Board renewal efforts expressed by Directors of the Company (the “Board of Directors”) and increase shareholder value.
As a significant and long-term shareholder of the Company, we have expressed our views on Thunderbird to the Board of Directors on numerous occasions; However, the Board has shown a lack of urgency in addressing our concerns and as such we were pleased to have Voss Capital nominate a competing list of candidates for directors. We are confident that an improved board can help close the valuation gap and create value for Thunderbird shareholders.
UNDERVALUATION OF THE STOCK AND THE NEED FOR A STRATEGIC REVIEW
We believe Thunderbird’s management team, led by CEO Jennifer Twiner McCarron, has done a fantastic job executing on its business plan over the past several years. While not yet reflected in the reported financials, it appears to us that significant progress has been made in shifting the business mix towards more partner-managed and owned intellectual property projects, while continuing to deliver strong growth in core manufacturing services. However, we believe three key factors are causing the stock price to fail to reflect positive developments in Thunderbird’s fundamentals:
- Little transparency for investors about the company’s future earnings development. The crux of the issue here is that (i) many of the company’s projects fall under various non-disclosure agreements with its customers, and (ii) the specific timing of project milestones (i.e., one quarter or the next) is somewhat out of Thunderbird’s control, as customers often dictate the final launch plans. As a result, management has historically provided very little forward-looking information about what is reasonable growth expectations for revenue and earnings. While we understand the disclosure issues Thunderbird faces regarding its financial prospects and believe the company is making efforts to improve in this area, we believe much more can be done to improve the Improve communication with investors. Notwithstanding, Thunderbird will always be the type of company where insiders have a very significant informational advantage over public shareholders as to earnings potential, potentially making Thunderbird better suited as a private company where it can be valued fairly.
- Low trading liquidity. When we first became investors in Thunderbird in Q4 2020, average stock trading volume was approximately 150,000 shares per day. Over the past three months, that volume has declined to an average of about 30,000 shares per day.1 This very low level of liquidity makes it extremely difficult to attract new institutional investors, who are reluctant to dedicate research resources to a security will be a challenge establish a meaningful position.
- The company’s acquisition ambitions are hampered by the public market valuation. As a result of the two points above, in addition to various other factors, the company currently trades at just 7.2 times consensus FY2023 EBITDA estimates.2 At that multiple, we believe Thunderbird is significantly undervalued , it’s difficult to find acquisition targets that add value, especially when they’re large enough to require Thunderbird to issue equity as part of the transaction (and given the company’s low valuation, we’d strongly discourage such an issue). This should prompt the board again to consider whether Thunderbird should remain as a separate public company.
The result of these problems is that Thunderbird’s investors are left with an illiquid stock and subpar valuation, while management is handcuffed to executing its preferred strategy of acquiring other small studios. We believe all stakeholders would benefit from a rigorous strategic review process examining various ways the company can address these issues, including through a potential sale of the company. In our view, potential buyers of the Company, having signed the necessary non-disclosure agreement to have a full picture of Thunderbird’s prospects, would place a higher value on the Company than is currently reflected in the public markets.
QUESTIONABLE GOVERNANCE AND NEED TO UPGRADE THE BOARD
We have experience in dealing with challenging corporate governance situations. Problems rarely occur all at once, but evolve through many small changes that escalate into a larger problem over time. While a cursory glance might lead one to believe that the board has five “independent” directors, as noted below, four of the six members have long-standing relationships with other members of the board (with two of those affiliated directors joining the board in the last two years). Given the web of connections outside of Thunderbird between directors Frank Giustra, Marni Wieshofer, Linda Michaelson, and Jerome Levy (collectively, the “Associated Directors”), we question whether they are truly independent. We fear that these directors could effectively form a two-thirds supermajority of the board that could prevent the board from exercising independent judgment and acting in the best interests of shareholders.
- Ms. Wieshofer often cites her three-and-a-half years as CFO of Lions Gate Entertainment Corporation (“Lions Gate”) as a reason why she is a qualified director. Her time as CFO coincided with Mr. Giustra’s time as CEO of Lions Gate, now more than twenty years ago. Their relationship was specifically cited as the reason for her appointment to Thunderbird’s board of directors in December 2019.3 In a nod to their longstanding relationship, Ms. Wieshofer was also named to the board of directors of Accesco Impact last year, a philanthropic organization that Mr. Giustra founded in 2007 .
- Ms. Michaelson was appointed to the Board of Directors in March 2021. Ms. Michaelson and Ms. Wieshofer have a long-standing relationship. In her list of experiences, Ms. Michaelson notably cites several engagements on behalf of Lions Gate. Ms. Michaelson recently represented Sony on the acquisition of Industrial Media, a company of which Ms. Wieshofer’s husband, Roland Wieshofer, was CFO at the time.
- Mr. Levy joined the Board in January 2022. In the press release announcing his appointment, Ms. Wieshofer specifically references her long-standing relationship with Mr. Levy, where they were partners at MESA Securities, Inc. and later Houlihan Lokey.
Our concerns about a potential misalignment of interests between the associated directors (other than Mr. Giustra) and the shareholders are further compounded by their lack of stock ownership.4 This lack of legitimate financial interest in Thunderbird’s stock price, particularly for Ms. Wieshofer, who owns it Currently, receiving over $200,000 in annual cash compensation from the board of directors is troubling.
Railroad Ranch believes that shareholders deserve to be represented on the boardroom by truly independent directors with relevant industry experience and a shared goal of representing the best interests of all shareholders. With that in mind, we are excited about the candidates nominated by Voss Capital and the opportunity to replace the associated directors. In our view, at least three of the associated directors need to be replaced to restore investor confidence and put Thunderbird on a value-creating path. We urge the Board to hold the upcoming annual meeting in a timely manner to allow shareholders to express their views at the ballot box.
About Railroad Ranch Capital Management
Railroad Ranch Capital Management, LP is a Dallas-based private investment firm.
Railroad Ranch Capital Management, LP
1 Source: 3 month average daily trading volume according to Bloomberg Finance LP
2 Source: Bloomberg Finance LP as of November 15, 2022.
4 According to page 19 of the Company’s most recent circular, filed November 8, 2021 and a search of insider transaction records showing no insider purchases in the intervening time frame.
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