Shares of visual effects company Digital Domain Media Group have plunged 75 percent in four months; CEO John Textor tells regulators he’s considering buying the company.
PORT ST. LUCIE, FL — Shares of visual effects company Digital Domain Media Group have plunged 75 percent in four months, the Palm Beach Post reports, a collapse that has stripped $300 million from the struggling venture’s stock market value.
With shares dropping rapidly, Digital Domain Chief Executive John Textor told regulators Wednesday that he’s considering buying the company. In a filing with the Securities and Exchange Commission, Textor said he leads a group that is exploring a purchase of the company “in an attempt to increase shareholder value.”
Shares of Digital Domain (NYSE: DDMG) plunged 24 percent Thursday to $2.24, down from a peak of $9.20 on May 1.
Textor owns 24 percent of Digital Domain, a stake that has lost more than $70 million in value in four months.
The largest shareholder is Palm Beach Capital, a private equity fund based in West Palm Beach. Its 16.4 million shares of Digital Domain have shed $114 million since May 1.
The plunge has complicated Textor’s plan to repay a loan he used to buy shares in the company. Textor previously borrowed $12.5 million from Palm Beach Capital to buy shares of Digital Domain, including $10 million in November and $2.5 million in May.
Textor has repaid $1.6 million of the loan, according to regulatory filings. The loan comes due Friday, but in the SEC filing on Wednesday, the company said its two largest shareholders have extended the deadline.
The Post reports that corporate governance experts said it’s rare for a shareholder to lend money to a CEO to buy shares. “It’s just not a smart idea,” said Charles Elson, a finance professor at the University of Delaware. “If you can’t pay it back, what happens?”
If Textor were to default on the loan from Palm Beach Capital, his annual interest rate would go from 12 percent to 19 percent, Digital Domain reported. Collateral for the loan includes 8.5 million shares of Digital Domain stock owned by Textor and mansions in Stuart and Mountain Village, Colorado.
The Post reports that Executive compensation expert Paul Hodgson of GMI Research said such arrangements are “not very usual.”
“It’s kind of generally been frowned upon because it tends to complicate relationships and undermine situations from a governance point of view,” Hodgson said to the Post. “That would raise a red flag with us.”
Digital Domain’s large losses have raised a red flag for investors, who have been selling shares. The company this month reported a second-quarter loss of $36 million on revenue of $33 million. The company lost $72 million in the first half of the year.
State lawmakers and city officials have bet that Digital Domain can turn Florida into a hub for high-tech animation jobs. The company has been promised $132 million in cash, land, tax credits and financing from the state and the cities of Port St. Lucie and West Palm Beach.
Jennifer Wolfe is Director of News & Content at Animation World Network.