Premier Tests a Value Investor's Patience

 | Apr 25, 2012 | 12:30 PM EDT
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Value investing involves three things: patience, patience and waiting around for an idea to pan out (which is, of course, patience). It can be a long, drawn-out process, and it's not for everyone. Holding a name for two, three or four years or more is an eternity to some. But the patience is often rewarded, if you've got the stomach for it.

It can be maddening and painful at times. Especially when you've reached a tipping point, a final event that will determine success or failure and determine whether owning a name was worth the wait and opportunity costs. Owners of Premier Exhibitions (PRXI), which has garnered a decent amount of press recently regarding the company's auction of more than 5,000 artifacts salvaged from the debris field of the Titanic wreck site, are still waiting.

The auction results were supposed to be announced on April 15, the 100th anniversary of the Titanic sinking, but that has been delayed, and the silence has been deafening. On April 4, the company extended bidding to April 9, "due to the level of interest in its auction ... and the late entry of additional potential bidders." On April 10, Premier announced that it was in discussions with "multiple parties for the purchase of its Titanic artifacts collection" but was canceling a press conference originally scheduled for the following day. Since then there has been no news about the auction.

The uncertainty, of course, has weighed heavily on shares, which have given back about a third of their value since the late-March run-up to a high of $3.62. The company's current market cap of $116 million is well below the 2007 appraisal of the artifacts' value ($189 million), and that does not include salvor-in-possession rights to the wreck site, intellectual property or the company's operating exhibition business.

But without a winning bidder that's close to or above the appraisal value, little of that matters at this point. It's all about the uncertainty and the classic value dilemma: Assets may be extremely valuable on paper, but you need a buyer in order for that value to be realized.

This has been a long, drawn-out story, with significant milestones along the way. After a long court battle, in August, 2010 the company was essentially given a salvage award for more than 3,000 artifacts, in addition to those it already had title to. While this was a victory for Premier, the court gave itself one more year to decide whether Premier would receive title to the artifacts or the proceeds from a judicial sale. The court took the full year and finally made a ruling on Aug. 16, 2011, that gave Premier title to the artifacts.

In the fall, the company separated into two units, Premier Exhibition Management and RMS Titanic, setting the stage for a transaction, which in this case was in the form of an auction. Amid all the fanfare of an April 15 announcement, we are still waiting. Perhaps it should not be surprising, given the complexities involved in the sale, but it is frustrating nonetheless. The company isn't saying much, either. I have called management often the past couple of weeks, but they aren't talking. They probably can't.

There was one intriguing development yesterday, although it is unclear whether there is any peripheral connection to the auction. Premier announced the purchase of Arts and Exhibitions International, a touring and museum exhibition company, whose exhibitions include "Tutankhamun, The Golden King and the Great Pharaohs" and "Cleopatra: The Search for the Last Queen of Egypt." While details are sketchy at this point, it appears as though AEI's parent company will be getting 10% of Premier Exhibition Management in exchange. Premier shares rose 7.5% on the news.

Still, the uncertainty continues. Perhaps Tom Petty said it best: "The waiting is the hardest part."


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