The closing of the transaction, which is still subject to antitrust approval and completion of financing, is anticipated within six to nine months. If all goes as planned, this deal will create a powerhouse in the movie theater arena. The new company, called AMC Entertainment Inc., will own, manage or have interests in about 450 theaters and a total of about 5,900 screens. Headquartered in Kansas City, Mo., AMC will have operations in 13 countries and 30 states in the U.S.
“The feeling on behalf of the owners of each individual company was that both companies were operating subscale,” said a source close to the transaction who spoke on condition of anonymity. “One of the key drivers for the merger is to be able to compete more affectively with Regal [Entertainment Group].”
Regal currently operates the largest theatrical exhibition business the country, boasting 553 theaters with 6,264 screens in 40 states, according to its Website. A Form 10-K filed with the SEC, stated that it had cash flow of $387.4 million for the year ended Dec. 30, 2004.
Per terms of the agreement, Marquee Holdings Inc., the holding company for AMC, will become the holding company for the combined business. Stockholders of LCE Holdings Inc., Loews’ holding company, will hold approximately 40% of the outstanding capital stock in the new company.
Both companies said they plan to refinance their senior credit facilities in connection with the closing of the merger, and that the transaction will not constitute a change of control of the outstanding senior notes of Marquee or the outstanding senior notes or senior subordinated notes of AMC.
The exit plan for the five-firm team is to “re-float” the combined company sometime in 2006, the source said. If followed through on, the AMC offering would represent a relatively short-lived investment period for all the sponsors involved.
“Regal trades about 9x cash flow, and [the owners of AMC and Loews] hope the new entity will trade at that, too,” the source said, noting that the combined business will have “a little less” cash flow than Regal.
JPMP acquired its 50.1% stake in AMC last December, while existing shareholder Apollo re-invested in exchange for a 49.9% stake. The entire transaction was valued at approximately $2 billion, including $1.67 billion in equity and the assumption of approximately $750 million in debt. Meanwhile, in June 2004, Bain, Carlyle and Spectrum paid a combined $1.46 billion in a secondary transaction to buy Loews from Onex Corp. and Oaktree Capital Management.
The movie theater industry has only recently recovered from a period of overexpansion that began in the late 1990s. At the time, many theaters became bogged down in debt when they were acquired by private equity firms at the crucial moment in time when the upgrading from traditional sloped floors to the modern stadium seating became mandatory for survival. The need for the wide-scale improvements, combined with the highly-levered status inherent with being a PE portfolio company, ravaged the theaters’ cash flows.
Now that those seas of change have calmed, activity in the space has revved back up. In January, Quadrangle Group announced it had made a $50 million co-investment in Cinemark, which operates 302 theaters with 3,273 screens in North America and Latin America. That theater chain has been owned by Madison Dearborn Partners since April 2004, when the Chicago-based buyout shop bought it from Cypress Investment Partners in a $1.55 billion secondary transaction.
The Blackstone Group looked to Europe for its theatrical exhibition acquisitions; buying Cine-U.K., which operates 34 multiplex cinemas in the U.K. last October, and then acquiring U.K. and Irish movie theater chain UGC Cinemas Holdings Ltd. two months later.
More recently, Veronis Suhler Stevenson acquired Southern Theatres LLC, a regional multiplex operator that runs four movie theatres in Louisiana and Mississippi. The March 2005 deal included a $20 million equity investment and a $30 million growth capital commitment.