AMC Offers IPO Shares at Discount Amid Slower GrowthChristopher Palmeri and Leslie Picker
AMC Entertainment Holdings Inc., the cinema chain owned by China’s third-richest man, is selling shares at a discount in its initial public offering as it grapples with slower growth and more debt than its rivals.
The company is seeking to raise as much as $368.4 million in the sale today, offering 18.4 million shares for $18 to $20 each. At the midpoint, AMC would have an enterprise value of about 7.2 times MKM Partners LLC’s forecast for 2014 earnings before interest, taxes, depreciation and amortization. That compares with more than 7.9 times 2014 Ebitda for Regal Entertainment Group and Cinemark Holdings Inc., data compiled by Bloomberg show.
AMC’s concentration in large cities means high rents are keeping profit margins below those of both rivals, according to Wunderlich Securities Inc. While recent upgrades may draw more urban viewers, AMC is projected to lag behind both Regal and Cinemark in revenue growth. AMC, which was taken private in 2004, also carries more than $2 billion of debt, a turnoff to potential investors, said Sam Hamadeh, founder of the New York-based research firm PrivCo Media LLC.
“AMC has lots of debt and the company’s growth has slowed as well,” Hamadeh said by telephone. “AMC’s IPO is unlikely to be well received.”
China’s Dalian Wanda Group purchased Leawood, Kansas-based AMC from a group including private-equity funds Apollo Global Management LLC and Bain Capital for $2.6 billion, including debt, in 2012. The deal made Wanda’s Chairman Wang Jianlin the largest theater owner in the world. Wang has has a net worth of $12 billion, according to the Bloomberg Billionaires Index.
Wanda will own about 80 percent of the company’s stock after the IPO, the prospectus shows.
AMC is the second-largest U.S. theater chain, according to the Washington-based National Association of Theatre Owners. It has 343 locations and 4,950 screens, mostly in cities including New York and Los Angeles. The company has spent $182 million over the last few years making improvements to its cinemas, including reclining chairs, drink fountains with 120 variations and seat-side service for food and cocktails.
While the company trailed rivals in freshening up its theaters, the cushy chairs may increase revenue in larger markets, according to Chad Beynon, an analyst with Macquarie Group Ltd. in New York.
Still, growth in revenue at AMC will be slower than at Regal and Cinemark, rising about 8 percent in the two years through 2014, according to estimates by Greenwich, Connecticut-based MKM. Over the same period, revenue growth at Cinemark will be 18 percent, while that at Regal Entertainment will be about 14 percent, analyst forecasts compiled by Bloomberg show.
One of AMC’s main challenges has been high-cost rents for its theaters in urban markets, according Matthew Harrigan, an analyst with Wunderlich Securities in Denver.
“When you have the cost associated with those theaters, you’re not going to get the margins of other operators like Cinemark,” Harrigan said.
AMC’s Ebitda margin is expected to be about 17 percent next year, compared with about 23 percent at Cinemark and 20 percent at Regal Entertainment, data compiled by Bloomberg show.
The IPO brings AMC back to the public markets for the first time in nine years. The company was acquired by a CCMP Capital Advisors LLC-led group in 2004, and then merged with Loews Cineplex Entertainment Corp., owned by another private equity consortium, before Wanda bought it last year.
AMC had $2.07 billion in net debt at the end of 2012, or about 5.4 times last year’s Ebitda, compared with 3.4 at Regal and 2.2 at Cinemark, data compiled by Bloomberg show.
Proceeds from the offering will be used reduce borrowings, according to the prospectus. Citigroup Inc. and Bank of America Corp. are managing the offering. The shares will be listed on the New York Stock Exchange under the symbol AMC.
AMC may benefit from its relationship with Wanda, China’s largest theater owner, in negotiation deals with movie studios, since theaters and studios split ticket revenue. One reason that industry leader Regal Cinemas has enjoyed high margins is the advantage its size gives it in negotiating, Macquarie’s Beynon said. U.S. studios are very interested in getting space in Chinese theaters.
Regal, based in Knoxville, Tennessee, has surged 40 percent this year, while Plano, Texas-based Cinemark has gained 25 percent.
Given the industry’s limited growth potential, investors will not be as excited about AMC’s IPO as other recent offerings including SeaWorld Entertainment Inc. and Hilton Worldwide Holdings Inc., said Beynon.
“Interest is medium compared to other IPOs,” he said.
(Corrects name of Hilton Worldwide Holdings Inc. in penultimate paragraph.)