Chennai: The move is akin to computer animation — one image morphing into another. The Chennai-based computer animation company, Pentamedia Graphics, has decided to create a sort of mirror image out of its wholly-owned subsidiary Mayajaal Entertainment.

Not only is the Rs.243 crore Pentamedia converting its wholly-owned subsidiary Mayajaal Entertainment (turnover Rs.5 crore), into a composite entertainment company by transferring its animation and internet channel (Num TV) to it, will also merge three other subsidiaries with Mayajaal.

The three companies to be merged with Mayajaal are, Kris Srikkanth Sports Entertainment (engaged in production of television serials and sports programmes) Media Dreams (film and television programme production company), and Intelivision (which owns the children''s channel Splash). Mayajaal operates an entertainment complex with multiplex theatres, food court, bowling alleys, video game parlour and an 18-acre sports complex — Mayajaal''s The Champ Sports Village. Mayajaal has invested Rs. 30 crore into these facilities.

So what will Pentamedia do? Answers S Chandrasekaran, chief financial officer, "All businesses undergo a change. Right now, we think this is the best move to offer value to the shareholders. Pentamedia will become a marketing and distribution outfit selling the films produced by the group outfits."

It will also hire out its infrastructure to various media-related activities. Pentamedia will retain the title to the land, building, plant and machinery while only the digital assets, hardware and software of the animation and Num TV divisions will be transferred to Mayajaal.

The company will continue to run its compact disc (CD) and computer based tutorials (CBT) business. The division has recently bagged a large order for replicating CD ROMs from the US-based Power Conversion (India).

However, this divestiture does not imply that Pentamedia is completely exiting the animation business. According to Chandrasekaran, the company will serve the international animation market through its overseas subsidiaries like Num TV (Mauritius). The animation business to be transferred to Mayajaal mainly serves the domestic market and the company''s own film production needs. A major chunk of the company''s animation revenue comes from overseas.

As a part of the merger process, Pentamedia shareholders will receive Mayajaal shares which will be listed on the stock market. Post restructuring, Pentamedia will hold the majority shares in Mayajaal.

The proposed restructuring is expected to enhance the financial strength of Pentamedia and Mayajaal, which will become a production and content exhibitor without any liabilities.

"Mayajaal is a debt-free company with assets valued at nearly Rs.100 crore," Chandrasekaran disclosed. According to him, negotiations are underway with some investors who have shown interest in Mayajaal.

Audit firm R Subramanian & Co is carrying out the valuation process of all the entities involved in the restructuring plan and its decision is expected soon.

In 2000, Pentamedia had acquired the three companies now being divested to Mayajaal for Rs.175 — crore Media Dreams (valued Rs.50 crore), Mayajaal (Rs.65 crore) and Kris Srikkanth Sports (Rs.60 crore) — by allotting 8.8 per cent of its existing equity at a value of Rs. 490 a share. (See ). SBI Capital Markets had acted as advisors to the deal.

Intelivision (which owns the Splash channel) was bought last August in a share swap deal for Rs.15 crore. Pentamedia''s scrip is now changing hands for less than Rs.8.

As per the plan, the restructuring will have become effective from January 01, 2004, for which the company take necessary action to seek statutory approvals from its shareholders, lenders, creditors and the High Court of Chennai among others as required by law.

Post demerger /restructuring Pentamedia''s shares will be converted to Re.1 paid up share.

For the quarter ended 31, December 2003, the consolidated revenue of Pentamedia was Rs. 71.36 crore. Of this, its own revenue is around Rs.36 crore while the remainder is contributed by its subsidiaries.

The company''s first 2D animated feature film, Buddha, co-produced with Economic Development Board of Singapore will be ready for release in the international markets before the end of this financial year.

  also see : Pentamedia continues acquisition spree