WSJ: AMC Poised to Become World’s Largest Movie Chain
News story originally published at WSJ.com
By Erich Schwartzel
The sleepy movie-theater industry rarely is a player in big-ticket deals. But after working for months to get skeptical investors on board, AMC Entertainment Holdings Inc.appears poised to win shareholder approval for an acquisition that would make it the largest exhibitor in the world.
AMC, which currently is the second-biggest theater chain in the U.S., plans to pay $1.2 billion to acquire Carmike Cinemas Inc., a tie-up that Carmike shareholders are expected to vote on Tuesday. The initial deal, announced in March, was met with investor backlash and forced a delay of the vote.
Meanwhile, AMC Chief Executive Adam Aron is pursuing a second acquisition that would expand the company to Europe. The deal is expected to close by the end of the year.
“Two acquisitions at the same time,” said Mr. Aron in a recent interview shortly after completing a roadshow to raise a debt offering to help fund the deals. “We have a capital expenditure for each, so we need to make sure we raise the funds.”
AMC’s deals—the $650 million purchase of Europe’s Odeon & UCI Cinemas Group, in addition to the Carmike acquisition—are expected to take AMC’s theatrical footprint to about 900 locations, from about 388. Its stateside merger with Carmike, currently the nation’s No. 4 exhibitor with 273 theaters, is considered the largest possible tie-up in exhibition that would pass Justice Department scrutiny.
The deal combines AMC, an urban-centric chain that has drawn attention for its recent state-of the-art auditorium renovations, with Carmike, which largely has operated lower-cost multiplexes in rural parts of the country.
It has been a long eight months for AMC, majority-owned by Beijing-based Dalian Wanda Group Co., since the Carmike deal was announced. Shareholder blowback to the initial offer—$30 a share in a $1.1 billion deal—forced the company to delay votes on the acquisition, and political opposition began mounting because of AMC’s Chinese ownership.
But now that AMC has come back with an offer of $33.06 a share and some AMC stock, enough support is expected to win shareholder approval, according to people familiar with the matter. The improved terms helped convince some major investors and proxy advisory firms to reverse course and endorse the deal.
New shareholders who have come on board since the initial offer also are helping to muster enough votes to complete the deal, say people familiar with the matter.
Several investment firms specializing in arbitrage bets have bought into Carmike since March and now appear likely to see short-term gains because of the sweetened terms. They include Magnetar Financial LLC and Driehaus Capital Management LLC, which didn’t have Carmike stock a month before the acquisition’s announcement but is now the company’s largest shareholder, with a stake of just under 10%.
Those late-arriving shareholders have annoyed investors such as Chris Mittleman, whose Mittleman Brothers LLC is Carmike’s second-largest shareholder with a 9.5% stake. He said his firm would vote against the deal.
“Most of the major shareholders now are newcomers who came in when it was announced at $30. Making 10% in a very short period of time? They’re probably dancing about it,” Mr. Mittleman said.
Among his grievances: Carmike didn’t shop itself around to other companies that could have run up the bid, and a premium should be offered because Carmike represents the biggest possible company that AMC likely could acquire under antitrust rules. Irate about AMC’s valuation of Carmike, Mr. Mittleman argued that $40 a share was a minimum fair value.
Carmike declined to comment.
Resistance to the deal also has come from Washington, D.C., operative Richard Berman, a prominent lobbyist who has waged a campaign against AMC’s controlling stakeholder, Wanda, which includes opinion articles, lobbying Congress, and paying for billboards that refer to AMC as “China’s Red Puppet.” He also has organized demonstrations outside some Carmike theaters.
Even if the deal goes through, Mr. Berman said he would be fighting a long-term battle against Chinese intrusion into U.S. media holdings. “It’s building up steam to affect future deals in Hollywood and the media space,” he said.
Mr. Aron rejected the claim that Wanda controlled the operations of his company. AMC is an “American company led by American management from Leawood, Kan., which is about as American as you can get,” Mr. Aron said.
If the Carmike deal goes through, AMC plans to invest “hundreds of millions of dollars” in upgrading Carmike theaters and bringing the chain into its growing loyalty program, Mr. Aron said.
Odeon patrons in Europe also will soon see theater upgrades that include the installation of AMC’s signature reclining seats and expanded food-and-drink options.
Carmike renovations will run from extensive—wholesale changes that take up to three years—to smaller improvements, such as the installation of Coca-Cola “Freestyle” machines that dispense 100 different flavors of soda. The soft-drink machines represent a $25 million investment and could start appearing in lobbies by mid-2017, Mr. Aron said.
AMC will operate Carmike under a “two-brand strategy” that will label some theaters as AMC and others as something different, Mr. Aron noted. Sticking with the Carmike name remains an option for those locations, he added.