AMC's $1.1 Billion Carmike Deal Makes China Movie Powerhouse

AMC Buys Carmike For $1.1 B in All-Cash Deal
  • $30-a-share deal values No. 4 U.S. exhibitor at $1.1 billion
  • Merger creates world's biggest movie circuit, companies say

AMC Entertainment Holdings Inc., controlled by China’s richest man, agreed to buy Carmike Cinemas Inc. in a $1.1 billion all-cash deal that would create the world’s largest cinema chain and extend Chinese influence in the movie industry.

AMC, majority owned by billionaire Wang Jianlin’s Dalian Wanda Group Co., will pay $30 a share for Carmike, a 19 percent premium over its closing stock price Thursday, according to a statement from the companies. The agreement combines the second- and fourth-biggest U.S. movie theater chains and vaults the resulting entity past Regal Entertainment Group.

Exhibitors have been investing heavily in their chains, competing for fans with bigger screens and luxury seating. U.S. ticket sales, while rising to a record $11.1 billion in 2015, are little changed in recent years. China, the second-largest movie market, is growing fast and is poised to pass the U.S. AMC’s Chief Executive Officer Adam Aron said Friday he sees room for the domestic market to grow.

“As we look at the film slates for 2017 and 2018, they look to be gangbusters,” Aron said on Bloomberg Television. “This might be a perfect opportunity for AMC to get larger just as some real blockbusters hit movie screens around the country.”

Carmike, based in Columbus, Georgia, jumped 17 percent to $29.27 at 12:38 p.m. in New York Friday. AMC also rose, climbing 3 percent to $26.48.

Aron said on Thursday he began pursuing Carmike almost immediately after becoming CEO in January.

“I called the CEO of Carmike on my first week of the job,” he said. “We had dinner on the third week. There was no reason to go slow. There is an old adage, ‘Time is the enemy of all deals.”’

Wanda wasn’t directly involved in talks, Aron said. The parent company greenlighted his plan to grow through acquisitions and was “enthusiastic,” he added. Citigroup Global Markets Inc. advised AMC, while JPMorgan Chase & Co. advised Carmike.

Counter Bid?

AMC’s offer is low on a per-screen basis and Carmike could attract a counterbidder like Regal Entertainment, according to Eric Wold, a B. Riley & Co. analyst who was recommending all three stocks. Carmike recently came under pressure from the activist investor Oasis Management Co.

“We think we did get an attractive price for Carmike,” Aron said. “We’re quite comfortable that when all this shakes out, we will be the owner of Carmike Cinemas.”

‘Compelling Transaction’

Together, AMC and Carmike would have well over 600 locations in 45 states across the country, including the District of Columbia, according to the companies’ joint statement. The deal may require some divestitures, Carmike’s Chief Executive Officer David Passman said in an interview, adding that the talks had been going on for a few weeks.

“This is a compelling transaction that brings together two great companies with complementary strengths to create substantial value for our guests and shareholders,” Aron said in the statement. The companies said the deal would generate $35 million in cost savings annually.

While some theater sales may be necessary, Aron said the two circuits “were quite complementary,” with AMC in urban markets and Carmike having a larger presence in smaller cities.

“We have a pretty solid understanding of what the Justice Department is interested in,” Aron said in his interview Friday. Together, the companies’ market share, at about 23 percent, is “not the kind of market share that scares anyone.”

The combined company will be run by Aron, who was appointed on Jan. 4, and will keep its headquarters in Leawood, Kansas, according to the statement. The transaction was approved by both boards and is expected to close by year end.

According to the deal terms, AMC would have to pay Carmike a reverse breakup fee of $50 million if the Department of Justice blocks the acquisition. Carmike would pay $30 million if it walks away from the deal.

The deal helps Wang achieve his goal of controlling 20 percent of the global film market by 2020. AMC operates 5,426 screens, according to its latest earnings release, while Carmike had 2,954. Regal closed out 2015 with 7,361 screens.

Wang’s Dalian Wanda Group, a real estate-to-entertainment conglomerate, acquired AMC Entertainment in 2012 for $2.6 billion including debt. The theater chain went public in December 2013. Wang is the second-richest person in Asia behind Hong Kong billionaire Li Ka-shing, according to the Bloomberg Billionaires Index.

Wanda Expands

It’s already been a busy year for Wanda. The company agreed in January to buy Legendary Entertainment, the independent film and TV producer that made “Godzilla,” for $3.5 billion. Wanda also announced a retail-and-leisure development outside of Paris, a $2.3 billion investment in three hospitals, the formation of a financial group and the signing a $10 billion development deal in India. The company has also said it’s planning five major acquisitions in 2016 -- three of them overseas.

Wang’s film, tourism and sports operations all fall under its fast-growing Cultural Industry Group, which saw revenue climb 46 percent last year and is forecast to climb 30 percent in 2016. By comparison, Wanda Group estimates total sales rose 19 percent in 2015 and will probably decline 12 percent this year because of the slump in its property business.

(In an earlier version of the story, company corrected the timing of the dinner between the CEOs.)