Discount Seller’s Seats Up in the Air

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The battle for control of Tix Corp. escalated last week after the company’s largest shareholder disclosed its plan to oust incumbent directors from the discount seller’s board.

Brentwood investment firm Baker Street Capital LP, which owns 22 percent of Tix’s shares, said in a June 27 letter to stockholders that it’s planning to nominate a slate of directors for election to the board at the company’s annual meeting. Tix, a Studio City company that specializes in discount show tickets and dinner deals in Las Vegas, hasn’t set a date for the meeting.

Tix then fired off a letter of its own to shareholders, blasting Baker Street’s actions as self-serving, aggressive and reckless, and detailing the company’s growth during the previous several years.

Tix’s shares closed at $1.80 on June 29, a 5.3 percent increase from the previous week.

Vadim Perelman, managing partner at Baker Street, said he believes Tix’s management isn’t acting in the best interest of the company and its shareholders.

“We want to make sure the value of the stock and the company is maximized, it’s as simple as that,” Perelman said. “It’s unfortunate that it has come to a proxy contest.”

Tix executives did not return requests for comment.

The battle began in March, when Baker Street offered to buy all outstanding shares of Tix for $2.10 each. That represented a 57 percent premium over the closing price that day. The offer was motivated by concerns about the possibility of a management-led buyout. Tix then approved a poison pill shareholder rights plan that would dilute the stock in the event of a hostile takeover. The board of Tix rejected Baker Street’s offer in May.

Why is Baker Street is fighting for control of the company?

One reason could be that Tix’s business, sales of discount tickets for Las Vegas shows and dinner deals, may have a certain appeal: There will always be people looking for deals on Vegas shows, according to John Tinker, a senior media analyst at New York investment banking firm Maxim Group LLC. Tinker doesn’t follow Tix, but does track Beverly Hills ticket seller Live Nation Entertainment Inc.

Tix has evoked the possibility of expanding into markets outside of Las Vegas. But it could face challenges on that front because some live entertainment shows won’t be associated with a discounter, Tinker said.

“The issue is if Tix is ever really going to break out of its niche,” Tinker said.

Tix struggled through the downturn, when demand for Vegas hotel rooms plummeted, driving down prices and visitor spending. The company reported in May that revenue for the quarter ended March 31 dropped 12 percent to $6.4 million, compared with the same period last year. Net income declined 19 percent to $70,000.

The ticket industry in general is in a continuing battle for audiences. Business was stagnating, then declined in the last two years, one analyst said. The industry is adopting a model of dynamic pricing, meaning that less desirable seats in a larger hall will be sold cheaper than before in order to squeeze some money out of them instead of leaving them empty. Live Nation has announced that it is developing the model.

But Baker Street’s Perelman believes there’s an opportunity to grow Tix’s business. Last week’s letter to Tix shareholders outlined the actions its director slate would take if elected.

They include closing the company’s Studio City headquarters, consolidating its operations in Las Vegas, better monetizing transaction volumes and even the possibility of selling the company.

Perelman questions why the company is based in California, a high-tax state, when it does all of its business in Nevada, a low-tax state. He believes it’s because the chief executive, Mitch Francis, wants to maintain his L.A. lifestyle.

“Doing business in California is not easy and is just unnecessary here in this case because none of the business is here in California,” Perelman said. “I don’t think it’s the prudent way to steward shareholder capital.”

Perelman said Tix is obliged by Delaware law to schedule the board meeting this summer, or within 13 months of its last meeting, which was in July 2010.

Baker Street was planning to send a letter to Tix shareholders this week providing the names and professional backgrounds of its five director nominees, whom Perelman described as having experience in mergers and acquisitions and finance.

The current Tix board includes Francis, certified public account Benjamin Frankel and sole practitioner Norman Feirstein.

In its response to Baker Street, Tix made the case that its management team plays a significant role in the company’s success because of relationships with business partners at Las Vegas hotels, shows and restaurants.

“Baker Street’s threat to take control of your company poses a substantial risk to your entire investment as it threatens to tear apart these close personal relationships,” Tix’s board wrote in its June 30 letter to shareholders.

The letter also took some personal shots at Perelman, saying he is “only seven years out of school” and has limited business experience.

But the 28-year-old Perelman, who launched Baker Street to take positions in companies with low value measures, isn’t fazed by criticism.

“Unfortunately they decided to say a bunch of nasty things about me personally,” Perelman said. “If they want to talk about my age, that’s fine. But I think the opportunity for shareholders is greater than what management has been able to deliver. And they didn’t want to address our points, just sling mud around, and that’s unfortunate.”

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