Going private and digital Panavision's focus.

CAMERA-MAKER Panavision Inc. is moving out of the public eye as it continues its shift into digital film and TV production.

Chairman Ronald Perelman moved to take the company private on April 19 by offering to buy all outstanding shares for $8 each in cash. The company's stock skyrocketed to more than $8 a share last week, up from $4.90.

The 52-year-old Woodland Hills company designs and manufactures film and digital camera systems, lenses and accessories, which it rents or leases to motion picture and television production companies and studios.

Perelman's move comes just after the debt-saddled company announced a refinancing deal. Panavision entered into a $345 million loan agreement, overseen by Perelman, to pay off existing obligations and provide capital.

In addition to the refinancing, the company also paid $15 million in cash and issued 49,792 shares of its stock to PX Holding Corp., Panavision's majority shareholder, to retire an outstanding principal balance of about $65 million under an existing term loan agreement. The company's last debt refinancing took place in January 2004.

"The going-private transaction has been on our minds for some time," said Panavision CEO Robert Beitcher. "Being public has some serious costs to it, and that cost has been escalating at a pretty dramatic rate."

Cross Research analyst Sharon Cross, who covers Panavision competitor Eastman Kodak Co., said the move made sense.

"Making the transition to digital and facing the challenges in that marketplace, it's much easier to do it as a private company," she said. "Still, success after going private is not a sure thing. Look at Polaroid, they tried, but never made it through and out."

Panavision has a market cap of $318 million, with a debt of $390 million. The company has roughly 150 shareholders, well below the limit of 300 shareholders required to de-list a stock.

Panavision functions exclusively as a rental house and owns its entire inventory, operating under several revolving lines of credit and long-term loans.

"We buy once and rent forever," Beitcher said. "We have no plans to change our business model. Quite a lot of our capital investment is in lenses and accessories, and those are shared by both digital and film."

Perelman, worth an estimated $6.1 billion according to Forbes, is the sole stockholder of MacAndrews & Forbes, which holds the controlling stake of Panavision. Perelman's investment portfolio has included holdings in Revlon, Marvel Comics, Scientific Games, and Deluxe Laboratories.

PX Holding Corp, a wholly owned subsidiary of MacAndrews & Forbes, owns more than 96 percent of Panavision's stock, and Sony Corp.'s Sony Electronics owns about a 2 percent stake in the company.

Perelman acquired the bulk of his Panavision stake in 1998, through a complicated deal that left the company with about $500 million in debt. The billionaire investor previously tried to buy the outstanding Panavision shares in 2001, using licorice maker M&F Worldwide--another company he controlled--to purchase Panavision. But M&F's other shareholders considered the purchase price too high and blocked the deal.

New camera

According to Securities and Exchange Commission filings, the company's cash flow for the twelve-month period ending Dec. 31, 2005, was $25 million, a three-year high and a 188 percent increase over the previous 12-month period, when Panavision generated $8.6 million in cash flow.

Some of the good news can be attributed to the success of a new digital camera line. Last summer, Warner Bros. chose Panavision's Genesis HD video camera for its upcoming film, "Superman Returns." The Genesis, introduced as a prototype in 2004, was developed with Sony Electronics over a three-year period.

Panavision now has 45 Genesis cameras, and will add 15 or more by year's end. The company will continue to upgrade, but not produce, its high-end film cameras over the same period, Beitcher said.

Currently, about 80 percent of Panavision's camera rental revenue comes from traditional film cameras, and about 20 percent from digital cameras. The company's inventory includes more than 1,200 cameras and 7,500 lenses that are leased out. A typical film production uses about three cameras, Beitcher said.

Sony executives declined to comment on Perelman's offer, but said they expected the collaboration with Panavision to continue.

"Clearly, Sony and Panavision have had a very fruitful long-term relationship," said Rick Clancy, senior vice president of corporate communications for Sony Electronics. "Sony is very focused on developing high definition video for digital cinema, and we absolutely plan to continue our work with Panavision."

The two companies have a long history: Panavision and Sony Electronics established a joint venture in the 1990s called DHD Inc., but the venture dissolved in 2004 when Panavision bought out Sony's 49 percent interest.

Sony owns about half of the outstanding Panavision shares, down from the 8 percent it acquired in 2000, part of a deal under which Panavision agreed to provide lenses for Sony's high-definition cameras. In 2004, Perelman converted a big chunk of his preferred stock into common stock, diluting Sony's shares.

Panavision Inc. (PVSK.PK)

YEAR (Dec. 31)                    2005       2004

Revenue (millions)              $233.3       $207
Total Expenses (millions)        219.9      202.1
Operating Income (millions)       13.4        4.9
Net Loss (millions)             (23.7)     (10.2)
Loss Per Share                 ($0.60)    ($2.34)

SUMMARY

Business: Camera and lens manufacturer
Headquarters: Woodland Hills
CEO: Robert Beitcher
Market Cap: $317 million    Dividend Yield: N/A
Total Liabilities: $125.2 million    P/E Ratio: N/A
Long-Term Debt: $308 million