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AMC's owners see paltry profits from theater chain

by contributors David Carey and Andrew Bulkeley | Published May 22, 2012 at 9:30 AM

AMC Entertainment Holding's bevy of private equity backers will close out an eight-year investment in the movie theater chain with a fairly skimpy profit, financial filings indicate.

Chinese real estate-to-entertainment conglomerate Dalian Wanda Group Corp. Ltd. agreed Monday to buy Kansas City, Mo.-based AMC to become the world's biggest movie theater company. The takeover would be the largest acquisition of a U.S. company by a Chinese group.

Beijing-based Wanda would pay $2.6 billion, including the absorption of about $2 billion in liabilities, for AMC. The figure includes about $267 million of cash on hand.

According to a person familiar with the situation, AMC owners Apollo Global Management LLC, CCMP Capital Advisors LLC, Bain Capital LLC, Carlyle Group and Spectrum Equity Investor LP will garner roughly $500 million in sale proceeds.

Including a $532 million one-time dividend AMC paid them in 2007, they'll come out about $100 million ahead on the combined $955 million of equity they sank into AMC, according to people familiar with the matter. The amount does not include advisory fees the firms collected.

Apollo and CCMP's predecessor, J.P. Morgan Partners LLC, invested $272 million apiece in a $2 billion buyout of the chain in 2004. In the deal, Apollo cashed itself out of a $250 million minority investment it had made in 2001, when AMC was public.

Apollo reaped $870 million in cash, or 3.5 times its original money, in the 2004 deal, according to filings.

Since then, a series of mergers have failed to bolster AMC's profitability.

The biggest was a $1.5 billion stock-swap purchase of rival chain Loews Cineplex Entertainment Corp. in 2005. Bain, Carlyle and Spectrum owned Loews, together injecting $421 million of equity in a 2004 takeover.

Loews' three PE sponsors took a 40% interest in AMC, with Apollo, J.P. Morgan Partners and others retaining 60%. Loews' sponsors will make out slightly better than Apollo and CCMP in the sale to Wanda.

AMC posted $2.5 billion in sales in the 12 months ended March 31, the same as five years ago. Ebitda in that span has fallen 32%, to $264.5 million.

"Last year was a one of the worst for movie attendance in years," Moody's Investors Service analyst Karen Berckmann said. "People just weren't going to movies."

In the last quarter, though, blockbuster hits such as "The Hunger Games" and "The Avengers" have given attendance a lift.

The PE investors have tried unsuccessfully to list AMC almost annually since they picked it up but have repeatedly aborted the plans at various stages. The five firms either declined to comment or didn't return calls.

In announcing the deal Monday, Wanda said it plans to invest an additional $500 million to upgrade cinemas with bars as well as 3-D and Imax projection equipment.

"This acquisition will help make Wanda a truly global cinema owner, with theaters and technology that enhance the movie-going experience for audiences in the world's two largest movie markets," Wanda chairman Wang Jianlin said in a statement.

AMC operates 346 cinemas in the U.S., with a total 5,034 screens, including 2,336 3-D theatres and 128 Imax screens.

Wanda said it would retain AMC's management, led by president and CEO Gerardo Lopez, and allow the company to operate largely independently.

Wanda said it first began stalking the company, which is a close second to Knoxville, Tenn.-based Regal Entertainment Group among U.S. exhibitors, in early 2010.

The deal will make Wanda active in two of the three biggest cinema markets: China, Japan and the U.S. are the world's largest. It already owns 86 theaters with 730 screens.

The deal represents the third sizable acquisition featuring a Chinese buyer this month. Bright Food (Group) Co. Ltd. on May 3 agreed to buy 60% of the U.K.'s Weetabix Food Co. from Lion Capital LLP for an enterprise value of £1.2 billion ($1.9 billion), and Chinese Internet portal Alibaba Group Holding Ltd. agreed Monday to buy back a 20% stake in itself from Yahoo! Inc. for up to $7.1 billion in cash and stock.

The deal eclipses Lenovo Group Ltd.'s $1.75 billion acquisition of IBM Corp.'s personal computer activities in 2005 as the biggest purchase of a U.S. company by a Chinese suitor.

The transaction comes in the month that U.S. and Chinese officials ended the fourth U.S.-China Strategic and Economic Dialogue by giving each other assurances about how each government will vet merger applications from the other country.

The U.S. affirmed that the Committee on Foreign Investment in the United States, which reviews foreign takeovers of U.S. assets for national security concerns, would apply the same rules and standards to each transaction it reviews without regard to the investor's country of origin -- meaning that purchases in the United States by Chinese companies would not be singled out for special scrutiny.

Several previous attempts by Chinese companies to invest in the U.S. ran into trouble. Those proposals included the 2005 plan by Cnooc Ltd. to pay $18.5 billion in cash for Unocal Corp., which was withdrawn after lawmakers raised energy and security concerns; plans by China's Anshan Iron and Steel Group Corp. last summer to invest in Amory, Miss.-based Steel Development Co., a deal restructured after some lawmakers pressured CFIUS to block it; and Huawei Technologies Co. Ltd.'s 2011 plan to purchase assets from 3Leaf Systems Inc. of Santa Clara, Calif.

Ernst & Young LLP acted as financial adviser to Wanda, with Davis, Polk & Wardwell LLP's Phillip Mills providing counsel. A Citigroup Global Markets Inc. team including Colin Banfield, Christina Mohr, Derek Van Zandt and Eugene Qian provided AMC with financial advice. A Weil, Gotshal & Manges LLP team led by Douglas Ryder and including Katherine Kraus, Matthew Brush, Anthony Wang, Michael Nissan and Angela Fontana served as counsel.

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AMC's owners see paltry profits from theater chain

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