MCLC: Wanda in talks to buy AMC

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: Wanda in talks to buy AMC
***********************************************************

Source: NYT (5/7/12):
http://www.nytimes.com/2012/05/08/business/media/amc-said-to-be-talking-sal
e-to-wanda-group-of-china.html

AMC Said to Be Talking to Chinese Buyer
By MICHAEL CIEPLY and BROOKS BARNES

LOS ANGELES ‹ AMC Entertainment, which owns the second-largest movie
theater chain in North America, is in talks to sell the company or a
significant stake in it to the Wanda Group, one of China¹s largest theater
owners, according to people briefed on the discussions.

If completed, the deal will begin a new phase in China¹s push into the
global film industry by sharply increasing its leverage with Hollywood and
creating the first theater chain to have a commanding presence in the
world¹s two largest movie markets.

The people who described the discussions spoke on condition of anonymity
because the talks are private and not finished. The off-and-on
negotiations, they said, began more than a year ago, then became more
serious in recent weeks, as AMC scrapped plans for a stock offering that
would have raised as much as $450 million.

AMC has been owned since 2004 by an investment group that includes the
Apollo Investment Fund, J. P. Morgan Partners, Bain Capital Investors, the
Carlyle Group and others. Apollo and its founder, Leon D. Black, also had
a major stake in the chain before it was sold eight years ago for about
$1.7 billion to a group in which Apollo and J. P. Morgan are the largest
holders, with about 39 percent each.

Neither Gerardo I. Lopez, AMC¹s chief, nor a company spokesman responded
to queries. A spokesman for Apollo declined to comment. A representative
for Wanda in China was not immediately available.

Any deal, whether for the entire company or for a major stake, would
probably put a current value of roughly $1.5 billion on AMC. That figure
is based on its reported cash flow of about $181 million for the 52 weeks
ended Sept. 29 and an industry expectation that theater chains in the
United States will continue to sell for as much as eight times their
annual cash flow.

For AMC¹s investors, a recent spike in ticket sales may present an
opportunity to cash out an investment that has been in place longer than
is usual for hedge-fund money and to invest in businesses with more growth
potential.

Wanda¹s interest in AMC comes as China has been rushing headlong into new
business alliances with American movie companies, as it seeks to double
the contribution to its economy from entertainment and media in the next
five years.

Wanda, a conglomerate whose interests include commercial properties,
luxury hotels and department stores, is involved with film production and
distribution in China. It operates a rapidly growing theater chain that
now has 86 multiplex locations, and a total of 730 screens, including 47
large-format Imax screens.

On its Web site, Wanda says it accounts for about 15 percent of China¹s
movie ticket sales, which were about $2.1 billion last year. Wanda has
said that by 2015 it plans to more than double its screen count to about
2,000.

Founded in 1920 by three brothers with a single Missouri theater, AMC,
based in Kansas City, later was a leader in building complexes to show
more than one movie at a time. It now operates about 350 theaters with
5,050 screens. (The biggest theater chain is Regal Entertainment, which
has 522 theaters with 6,580 screens.) AMC is known for having better
locations than some of its rivals, which include Cinemark, the
third-largest chain. Six of last year¹s 10 top-grossing theaters belonged
to AMC.

In the United States, the major movie studios are largely barred from
owning theaters under federal consent decrees that long ago broke up an
integrated system under which the majors were able to produce, distribute
and exhibit their own films.

After the breakup, theater chains became the direct customer for studio
movies. The theaters sell tickets to those movies, splitting the proceeds
with the distributor under deals that are often fiercely negotiated.

Last year, however, AMC expanded into movie acquisition. It joined with
Regal to form Open Road Films, which buys and distributes the kind of
midbudget pictures that studios have started to neglect in favor of
megabudget film franchises. Open Road releases have included ³The Grey,²
an action drama starring Liam Neeson that took in $51.6 million earlier
this year.

AMC and the other big theater chains are experiencing an upswing because
of blockbusters like ³The Hunger Games² and ³The Avengers,² which took in
$207.4 million over the weekend to set an opening record. Ticket sales in
North America for the year to date total $3.6 billion, a 16 percent
increase from the same period a year ago, according to analysts.
Attendance is up 18 percent to about 456 million.

But the last few years have been extremely difficult for theater
operators. Last year, attendance in North America fell to 1.28 billion, a
4 percent decline from 2010 and the lowest total in 16 years. Ticket
revenue for last year totaled $10.2 billion, a 3 percent decrease.

Chinese theatergoers have shown a taste for effects-laden American
fantasies and action films like ³Avatar² and ³Mission: Impossible ‹ Ghost
Protocol.²

On the flip side, Chinese-made films have made little impression in the
North American market, which remains five times the size of China¹s,
though people briefed on the current deal say Wanda¹s ownership of
theaters here might create a pipeline for Chinese films in the United
States.