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Sunday, 18 August 2013 22:00

Selling history: GR restaurateur seeks buyers for Titanic artifacts

Written by  Matthew Gryczan, special from Crain's Detroit Business
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Experts say the Titanic artifacts owned by Premier Exhibitions Inc. could be worth $189 million. Experts say the Titanic artifacts owned by Premier Exhibitions Inc. could be worth $189 million. COURTESY PHOTO

As they file past authentic wreckage from one of the most devastating marine disasters in modern history, visitors to the Titanic exhibit that showed in The Henry Ford in Dearborn and now is at the Grand Rapids Public Museum can’t help but wonder what a dish or chandelier retrieved from that watery grave in the North Atlantic would be worth.

Mark A. Sellers III wonders, too. Only it’s more than idle curiosity.

Sellers, a successful restaurateur and bar owner in Grand Rapids, has taken on the task of finding a buyer for the some 5,500 artifacts brought up by deep-sea expeditions of the Titanic. As the unpaid chairman of the board of Premier Exhibitions Inc. (Nasdaq: PRXI), part of his job is to maximize shareholder value by scouting for potential buyers and assessing what they are willing to pay for the one-of-a-kind collection.

Very likely candidates include the Mariners’ Museum in Newport News, Va., the Titanic Belfast museum in Northern Ireland, the Luxor Hotel in Las Vegas, or even wealthy individuals such as Titanic movie director James Cameron or philanthropist Phil Anschutz. Or it could be a combination of any of the above.

In a very real sense, anyone can own a tiny piece of the Titanic collection now by purchasing a share of PRXI, which traded in a range of $1.65 to $1.75 recently. Depending on the value that they assign to the Titanic artifacts, some investors said the stock may be worth in excess of $4.25 per share, but others have sold their positions in the stock after years of waiting for the deal to be done.

That has a whole host of people — investment fund managers, executives, museum curators, attorneys — all asking the same thing: What is it worth? The response seems simple enough: It’s worth what someone is willing to pay.

“I think one of the caveats of all of this is the scientific and historical value of the Titanic assets,” said Chris DeMuth Jr., the founder and portfolio manager of Rangeley Capital Partners in New Canaan, Conn. who visited Sellers in Grand Rapids to make an evaluation of PRXI stock as an investment. “That’s not my area of expertise, but I believe that people in that area would say that it has modest scientific and historical value. We know the history, and there isn’t anything untested.

“But the Titanic assets have immense cultural value. It may have the same kind of cultural value of, say, the cultural value in a baseball stadium that is going to be razed. There may be small historic or scientific value to the stadium, but the cultural value can be immense — perhaps worth more than when the structure was built.”

Breaking up is hard to do

Sellers, 45, has become a celebrity of sorts in West Michigan for adding to the nightlife of downtown Grand Rapids over the past six years by launching HopCat, Grand Rapids Brewing Co., and Stella’s Lounge from scratch with his wife, Michele.

Along with another pub called McFadden’s that are all owned by the Sellers’ BarFly Ventures LLC, the restaurants and bars are all located within a stone’s throw of each other in the city’s entertainment district that surrounds the Van Andel Arena. In addition, BarFly Ventures expects to open at the end of the month its first operation outside of Grand Rapids, HopCat East Lansing, hometown of Michigan State University where Sellers received a bachelor’s degree in accounting in 1998.

Sellers credits the success of his restaurants to keeping true to what he himself likes and is good at. “The reason that the HopCat concept works is that it’s a beer bar started by beer lovers,” Sellers said. “I started it with my wife and we basically cater to people who love beer.

“We don’t try to compromise to please everyone,” Sellers said for HopCat East Lansing, which he claims will feature the most beers on tap of any bar in Michigan, 100. “For most businesses, particularly a beer bar, if you try to please everyone, you can end up pleasing no one.”

Sellers said he never aspired to taking control of a company that would eventually be declared salvor-in-possession of actual artifacts from the Titanic, the ocean liner that sank over a hundred years ago in the North Atlantic taking with it the lives of more than 1,500 people. He took a minor position in Premier Exhibitions several years ago as a manager of Sellers Capital LLC, then waged and won a proxy battle that allowed his fund to install its own board of directors and management after being disappointed by the progress of prior management.

Since that time, the company has improved financially. At the end of fiscal year 2013 that ended Feb. 28, PRXI posted net income of $1.95 million, or 4 cents per share, on total revenue of $39.5 million — the first profitable year of the four past fiscal years. That compares with a loss of $5.78 million, or 12 cents per share, on total revenues of $31.7 million in fiscal 2012.

Based in Atlanta, PRXI’s primary revenue source is developing and operating museum-quality exhibitions that include self-operated venues in Atlanta, Las Vegas, Orlando and one that opened at the beginning of August at the former Movieland Wax Museum site in Buena Park, Calif. and other touring shows.

In the first quarter of fiscal 2014 ended May 31, PRXI reported net income of about $971,000, or 2 cents per share fully diluted, on total revenues of $8.94 million, compared with net income of $1.2 million, or 2 cents per share fully diluted, on total revenues of $11.5 million for the same period last year.

Company officials said in a conference call that revenues for the quarter were lower compared with the same period last year because public interest was unusually high during the 100th anniversary of the Titanic tragedy and the company closed its venue at the South Street Seaport Museum in New York City in the aftermath of Hurricane Sandy. They said the second and third quarters this fiscal year may have negative comparisons with last year’s results for the same reasons.

But PRXI President and CEO Samuel S. Weiser said the company increased its gross profit margin for the quarter by controlling costs, and it expects to see additional revenue from the Buena Park venue and a proposed new venue on Broadway in the heart of Times Square in New York City. In November,

PRXI expects to open an artifact-based exhibit at the Franklin Institute in Philadelphia that details the life and death of the city of Pompeii.

Investors who analyze the valuation of PRXI stock generally discuss its breakup value by looking at two aspects: the sale value of the Titanic artifacts and the company’s ongoing exhibition business. In a number of court documents and non-binding letter of intent, experts have bandied about the $189 million figure for the artifacts.

Overall, DeMuth and other investors said the progress made by Premier in the operations side of the business has boosted the value of stock.

“The operating business of Premier exhibitions has some value, and I think it’s somewhere between $0.50 and $1 per share,” DeMuth said. “I believe that the per-share valuation of that $189 million (sale of Titanic assets) would be about $3.94 per share. So if you added the two values together, it would amount to a per-share value of about $4.44.

“There could be some leakage due to taxes that need to be paid on the sale of the Titanic assets, perhaps fees to the auction house and other expenses. I think the value may end up at about $3.75 per share (for Titanic assets) when this is taken into account, bringing the total value to roughly $4.25 per share.”

But DeMuth added that “the value of what shareholders will get is really what buyers are willing to pay, so the $189 million figure serves only as a reference point. The appraised value can be off by tens of millions of dollars from the final sale price.”

One organization that may be involved in negotiations to buy the Titanic artifacts would be the Mariners’ Museum. In his comments to investors, Weiser referred to a “consortium based in the Hampton Roads area of Southeast Virginia” that had signed a non-binding letter of intent with PRXI in October to buy the Titanic assets.

“We still believe that the Hampton Roads location contemplated by this consortium remains a suitable and desirable destination and an ideal permanent home for the asset,” a transcript of the call said.

The Mariners’ Museum is located in this area, is considered one of the foremost marine-themed museums in North America, has exhibited artifacts from the Titanic and holds events regarding the tragedy. Museum officials did not respond to requests from Crain’s as to whether the organization was involved in a consortium to buy the Titanic assets.

Opening the gates

In June, Sellers Capital lifted its 2 1/2-year lock on redemptions that its limited partners could take from the fund, essentially allowing investors to withdraw shares of PRXI. The move is significant because Sellers Capital owned about 46 percent of the stock, a huge position that has since been whittled down to about 34 percent since the announcement.

“Depending on whether you’re a short-term or long-term holder, you could look at the distribution as a big problem or a big opportunity,” DeMuth said. “The distribution reduces the huge overhang of Sellers Capital because limited partners are receiving shares, and in many cases might be likely to ‘fire sale’ their shares. That could lead to a weak share price short term.”

The stock has traded in a range of $1.51 to $2.99 over the past year, but has kept below $2 per share since the beginning of June. Company officials announced a stock buyback program authorized for up to 1.5 million shares that DeMuth said may have been initiated to blunt the flood of shares hitting the market.

Sellers said he understands that some investors are impatient about the sale of the Titanic assets, but the company has decided that it isn’t going to sell the artifacts “at a discount just to get a fast sale.”

“It’s very important that people realize that there is a trade-off between value and time, and we evaluate that trade off all the time,” he said. “There is some pressure on us to do it quicker, but I don’t believe that’s in the best interest of the shareholders.”
Sellers wouldn’t comment beyond what is reported in public filings, but added that “I’m not selling any shares. We have a lot of optimism about the future of this company.”


This article appeared in the August edition of Crain’s Michigan Business. More state and Southeast Michigan business news can be found at www.crainsdetroit.com/crainsmichiganbusiness.

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