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.
(END) Dow Jones Newswires
November 13, 2016 20:15 ET (01:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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