Fartsworth has decided to spinoff! Is this good for HMNY shareholders? Is it good for MoviePass? Is it good for Teddy? Only time will tell. Here’s my take.
First, for Shareholders, the spinoff could be good news. HMNY is now one of the most loathed companies on all of Wall St., with a despised CEO, a business model the media loves to hate, and a ticker that means nothing to anyone, what is left worth saving in HMNY?
For investors, the best chance that HMNY and or the new MoviePass ticker returns some capital to beleaguered shareholders is if 2 things happen.
1) MoviePass finds a solvent way to move forward
2) HMNY actually delivers a decent dividend to shareholders of the new MoviePass INC.
In the PR release Fartsworth tried to include some BS about Zones, and that they had this plan of spinning out companies all along, that is all just total nonsense. None of that stuff matters, there is nothing left when HMNY spins off Moviepass, everyone knows that.
What really happened here is Fartsworth could not deliver on the money he promised to Lowe and to Moviepass and as a result, they are looking for an amicable divorce. The story went sort of like this. Mitch thought he had found a white night in Fartsworth who could fund MoviePass through its planned expansion to get to 5 Million users. Both Lowe and Fartsworth badly underestimated the cash burn it would take to get there, and both also badly underestimated how fast the service would catch on with such an unbelievable deal. So as subscriber numbers went into hypergrowth, and cash burn went to mach 10, everyone, inluding Lowe and Fartsworth started to freak out. Wall Street spooked, knowing that the only way to get enough cash for the experiment was to sell ever more shares. Fartsworth was either too stupid, or too crooked, or just plain too unlucky to prove to Lowe that he could deliver the goods and make the marriage work.
Lowe was using Fartsworth for money – Not trying to be sexist, but Fartsworth was the sugar daddy, and Lowe was the golddigger. When the money (or even the promise of money) dried up, Lowe lost interest in his new found friend. And now the divorce proceedings are on. Fartsworth could never get that last 8% of Moviepass to own it all, and knowing that all the old guard at HMNY now despises him, and that the folks at MoviePass now basically were done with him, he had to make a move to try and save whatever he could for himself. Fartsworth also knowing that HMNY was now in the crosshairs of the New York AG, and that the SEC and NASDAQ had had just about enough of his Reverse Split, ATM share dumping shenanigans Fartsworth had to find his next move.
The spinoff could be the answer to Fartsworth’s prayers. First, it clears MoviePass from all the shareholder lawsuits, AG inquiries, and other nasty baggage from Wall Street. HMNY can simply spinoff Moviepass, and let HMNY live or die, or whatever – it really doesn’t matter all that much. Maybe they can find some other bullshit company like Zones to get people excited with, who knows.
MoviePass will almost certainly remove Teddy from ANY operating role at the company, the guy is a total liability, and even he may realize this by now. Almost certainly Lowe will be the CEO, and Ted will get a sacrificial BOD seat promotion. Promoting idiotic CEO’s to BOD seats is a well-honored tradition in the corporate world. Everybody wins, the CEO saves face, the company gets new leadership, and nobody has to admit they were idiotic. He will be demoted/ promoted to one voting member of several. He already has his seat, and you can bet that all or most of the other BOD members will treat Ted with all the respect he deserves :-). For Fartsworth, he can save some face, he can chalk up the spinoff as a great strategic move. He can stay on as CEO of HMNY until it totally withers to oblivion or they concoct their next Fartsworth scam company. It is even possible that Ted could step down from HMNY shortly after the spinoff, take a BOD seat on both companies, collect money and call it all good. Who knows what will happen to handsome Ted. Jail would be good, but that looks increasingly unlikely now.
Spinoffs are a funny thing. They can go really great, or really terrible in lots of different ways. When I was at Microsoft we spun off Expedia, it was great for the people who went with the spinoff, it was not particularly great for shareholders of Microsoft or the employees who were left behind. Expedia is now a $17 Billion dollar company – long shareholders of EXPD were richly rewarded.
However, There was no dividend for MSFT shareholders, and I can tell you if there were, it would have been a VERY nice thing to have. Microsoft first spun off Expedia for a measly $75 million in an IPO in 1999. It then sold the remaining portion of Expedia to IAC in 2001 for $1.8 Billion. Not a bad return, but shareholders of Microsft hardly noticed any difference, and employees that were left behind were certainly not happy to have missed the opportunity to be part of a successful IPO and big market winner. That said, IPO shareholders of the original IPO in Expedia did TERRIFIC! Who wouldn’t love to see the HMNY spinoff of Moviepass see similar results to Expedia?!!
Expedia was in a similar spot to MoviePass when it was originally spun out of Microsoft. It was losing money, it needed more capital to survive. It was an innovative idea, in a very new and disruptive marketplace. Many can barely remember the days of Travel Agents in strip malls, millennials can’t even comprehend travel prior to Expedia, Hotels.com and the like. However, back in 1999 there were as many people inside Microsoft that thought Expedia would never make it, as there were believers. That is in fact why they spun it out. The leaders of the Expedia business inside Microsoft were furious they could not get enough funding and traction from inside Microsoft itself to go after their business plan. The felt they had a much better chance of finding funding, and investing and focusing on the business outside of the clutches of Microsft and they wanted to be free!
Well – over the long term, the Expedia Management was 100% correct. The company has been massively successful and has come a very long way from losing millions on tiny revenue numbers inside of Microsoft. If you had purchased Expedia at the initial IPO, you would be the very happy owner of both Expedia and IAC stock, both of which have skyrocketed over the past several years. If you had simply held MSFT – you also would have done just fine. So there were no real big losers in this deal.
So to answer the question, will this ultimately be good for HMNY shareholders. I think the answer is more likely yes than no. Getting Fartsworth away from an operating role, and as far away from a CEO seat is a big win for the MoviePass business (and for humanity!) The likelihood that Mitch Lowe can now take over what’s left of MoviePass and turn it into a good solid company looks much more favorable now. Will HMNY shareholders get their “fair share” of the new MP INC? MAYBE! I mean, it’s Fartsworth we are talking about here so things could get screwed up before the spinoff in any number of ways. But there are a lot of other VERY interested parties here. Minority interests do have a say in these things, and with an AG watching, and the SEC and NASDAQ not really wanting to see more bullshit from Fartsworth, I don’t think he can screw HMNY shareholders out of at least some semblance of their fair share of the spinout company MP INC.
So my take, this is likely positive for everyone involved. Even Fartsworth. He doesn’t deserve it because he is a liar and he is stupid. But the rest of the gang does deserve it. MP customers, investors and employees all deserve a break, and I think the spinoff is the break that helps them all. IF – and it is still a big IF, Moviepass can find a way to hold on to a couple million subs, and shore up the value prop from here, they could survive and someday thrive. But there is nothing sure about any of this. It is risky as hell, and certainly not a risk worth more than 1% of your total portfolio.