This is the latest installment in the exhibition consolidation saga — and a logical one in light of Carmike‘s stated goal to build itself to 3,000 screens from about 2,660 in time for the onslaught of potential blockbuster sequels Hollywood plans to release in 2015. Westfield, NJ-based Digiplex has 206 screens in 21 locations and agreements to pick up five theaters with 53 screens, and introduces Carmike to four states: Arizona, Connecticut, Maryland and New Hampshire. Carmike can flex its financial muscle: It owns about 19% of cinema ad sales company Screenvision, which National CineMedia recently agreed to buy for $375M.
Digiplex — the short name for Digital Cinema Destinations Corp — is an interesting target. CEO Bud Mayo, who controls 39.5% of the voting shares, is well known in the industry. He co-founded Clearview Cinema, sold to Cablevision in 1998, and then co-founded Cinedigm, which he ran until 2010 when he founded Digiplex. Over that period he became a vocal supporter of digital projection and alternative content. He urged his colleagues, at the recent CinemaCon industry convention, to step up their efforts to find concerts and sports events to show on typically slow weeknights.
But small theater chains have struggled: Digiplex shares lost more than 23% of their value since the company went public in 2012. They’re up 8.3% in after-market trading today, following the announcement of the deal with Carmike. It has agreed to exchange 0.1775 of its shares for each of Digiplex’s 7.93M shares. That implies a $45.3M value for Digiplex — a 15.4% premium based on its market value today, based on Carmike’s closing price of $32.19 a share.
Here’s the companies’ release:
COLUMBUS, Ga. & WESTFIELD, N.J.–(BUSINESS WIRE)– Carmike Cinemas, Inc. (NASDAQ: CKEC) (“Carmike”), a leading entertainment, digital cinema and 3-D motion picture exhibitor, and Digital Cinema Destinations Corp. (NASDAQ: DCIN) (“Digiplex”) today announced that their Boards of Directors have approved a definitive agreement for Carmike to acquire Digiplex.
The agreement is a stock-for-stock transaction in which Carmike will acquire 100% of Digiplex’s 7.93 million shares outstanding. Each Digiplex share will be exchanged for 0.1775 shares (subject to certain potential reductions) of Carmike common stock. Digiplex currently operates in 21 locations with 206 screens, and has agreements to acquire another 5 theatres with 53 screens.
Since its founding in 2010 by Bud Mayo, Digiplex has been a fast-growing theatrical exhibitor dedicated to transforming its movie theatres into interactive digital entertainment centers featuring ‘something for everyone.’ Digiplex has been a pioneer and leader in alternative programming and has a 50% interest in the DigiNext distribution platform. The transaction is expected to close during the third quarter of 2014 and will increase Carmike’s footprint to 280 theatres and 2,936 screens in 41 states, inclusive of Digiplex’s acquisition pipeline. The acquisition is subject to certain conditions as detailed in the definitive agreement. Bud Mayo, Digiplex’s Chairman and CEO, has agreed to vote stock representing 39.5% of the Digiplex voting stock in favor of the transaction.
Carmike’s President and Chief Executive Officer David Passman stated, “Carmike strives to be an innovator in the exhibition industry, and we believe the addition of the Digiplex circuit will further enhance those efforts. Since its founding less than 4 years ago, Digiplex has been building a circuit of quality theatres based in leading markets. The circuit is a very complementary fit to Carmike and the acquisition enables us to add 4 new states: Arizona, Connecticut, Maryland and New Hampshire, to our expanding geographic footprint.
“Along with its circuit expansion via opportunistic acquisitions, Digiplex has built an industry leading alternative programming business, generating approximately 5% of admissions revenue, a significantly higher percentage than their larger peers. This transaction allows us to combine resources as we grow together, and we could not be more pleased to welcome Digiplex to our expanding theatre network.”
Digiplex Chairman, Chief Executive Officer and Founder Bud Mayo commented, “We view this transaction as a complementary win-win for both organizations. Digiplex holders will benefit by receiving stock in one of the industry-leading exhibitors. David Passman, his fellow senior executives and their customer-centric, theatre-level teams have together orchestrated a fantastic, multi-year turnaround – both operationally and financially.”
All of the acquired theatres in Digiplex’s current circuit feature digital projection systems. Over 35% of the screens are 3-D-capable and one theatre (Surprise, AZ) has an IMAX auditorium. Several locations include D-BOX motion-code action seats and Digiplex’s Solon, OH theatre has an auditorium with customized 4-D seats.
Macquarie Capital acted as financial advisor and King & Spalding LLP acted as legal counsel to Carmike in this transaction. Maxim Group LLC acted as a financial advisor and provided a fairness opinion in connection with the transaction and Eaton & Van Winkle LLP acted as legal counsel to the Special Committee of the Board of Directors of Digiplex.