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The Deal: Ballantyne Buys Sony Division

NEW YORK (The Deal) -- Ballantyne Strong shares increased 8% Tuesday after the cinema technology company announced it was finally putting some of its cash to use with the acquisition of Sony Electronics' (SNE - Get Report) digital media subsidiary, Convergent Corp

Omaha, Neb.-based Ballantyne said Tuesday that the all-cash transaction is valued at about $16 million. Convergent operates as Convergent Media Systems Corp. 

Sony, which purchased Convergent from Technicolor SA on Jan. 28, 2010, for an undisclosed price, had been shopping the division, Convergent spokesman Kris Konrath said. 

"[Convergent] became less core to its business at Sony and so it reached out to the investment community," Konrath said. "Ballantyne looked at us as having strong potential to improve its revenue number." 

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Ballantyne said Tuesday it expects the transaction to be between $0.06 and $0.10 accretive to earnings per share in 2014 and add between $0.15 and $0.20 in 2015. 

Alpharetta, Ga.-based Convergent generates annual revenue of about $40 million and averaged $700,000 in annual EBITDA over the previous three years, Ballantyne added. 

Founded in 1980, Convergent offers video services and digital technology for out-of-home advertising and communication purposes involving more than 22,000 locations and more than 95,000 displays. Its customers include Kroger, Safeway and Best Buy in Canada. Though it remains unclear how long Sony had been pursuing the sale of the division, reported in April that Convergent was up for sale. 

Ballantyne CEO Gary Cavey said in a Tuesday conference call that as part of a much larger corporation, Convergent didn't have the necessary resources or opportunity to expand and broaden its customer base. 

"[Convergent] continued to maintain some legacy customer relationships, but they did not grow the business," Cavey said. "As a result, revenue and profitability has declined over the past few years. We believe an opportunity exists to refocus Convergent's business on a broader market by leveraging the assets of two strong companies." 

Ballantyne investors liked the news. Shares, trading on the New York Stock Exchange under the symbol BTN, closed up 8% to $4.60, after closing the previous day at $4.26. 

"It's better than sitting on a lot of cash," said Kyle Cerminara, the co-founder and managing partner of Fundamental Global Investors LLC, which owns a 1.8% stake in Ballantyne, by phone. "[Convergent] is a very advertising-centric business model, which I think is a much better business model as they tend to get higher multiples and recurring revenue. Digital advertising certainly has a much higher multiple than selling movie screens or lights." 

Ballantyne had $41.14 million in cash and cash equivalents as of June 30, with no debt outstanding. 

Fundamental Global, based out of Charlotte, N.C., is one of Ballantyne's top 10 shareholders, holding 250,000 shares. Cerminara still thinks the stock remains substantially undervalued, despite shares advancing about 16.5% since its Nov. 9 closing price of $3.95, when Ballantyne mentioned it was on the hunt for acquisitions. 

"There's a lot of current assets that they can be putting to work in their business," Cerminara said, pointing to its $91.1 million in assets as of June 30. "The $16 million is sort of a first step towards that. 

In November, Ballantyne's Cavey said the company would be eyeing assets valued in the range of $20 million to $40 million, partly so that it could adjust to the continuing industry transition from analog to digital projection. 

Originally focused on the movie theater equipment market, 81-year-old Ballantyne has expanded into other markets, offering various audio and visual products. Its products include custom lighting for the space shuttle, the lights on the Freedom Tower 1 at New York City's World Trade Center and the beam of light that emerges from Las Vegas' Luxor pyramid. 

Ballantyne posted second-quarter revenue of $24.4 million for the period ended June 30, down from $46.71 million the same period a year earlier. Profit narrowed to $1.28 million from $1.8 million for the same period. 

Written by Sarah Pringle 

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