Movie goers will continue to see both the AMC Theatres and Carmike brand names after the companies complete their $1.1 billion (including debt) merger creating the world’s biggest exhibition chain.

But Hollywood studios will deal with a single, and more muscular, film buying group, according to plans that AMC execs laid out for analysts this morning.

They were eager to sell Wall Street on what they called the “industrial logic” and cost savings of the offer to pay $30 a share for Carmike.

5 months
The Carmike theater in the mall where I live is a dump & every presentation had a...
Sarcastic Cynic
5 months
Regal owns United Artists and assimilated other chains but has no ties to Carmike
5 months
Regal is it's own. Correct

AMC says it needs $830 million to finance the deal. About 39% would come from a term loan, 36% from new senior subordinated notes, and 25% from cash or a revolving loan.

AMC chief Adam Aron says there was “considerable enthusiasm” at China’s Wanda Group — which controls the No. 2 theater chain — for the deal. “This plan to get bigger at AMC was our plan, and we took it to Beijing to make sure that they, as a 75% shareholder, would be supportive.”

But he adds that “Wanda has no part in this transaction. This is an AMC transaction wholly funded by AMC” that won’t require the approval of Chinese officials.

Aron, who took charge of AMC in January, says he called Carmike CEO David Passman in his first week on the job to pursue a deal. The companies had seriously talked twice over the last four years about a possible merger, but couldn’t agree on terms.

Under the new agreement, Carmike would pay a $30 million fee if the deal doesn’t close — and AMC would pay $50 million if it changes its mind or the Justice Department blocks the union. Specifics about the break up fee will come out later today when the companies file their merger plans at the SEC.

Carmike shares are up about 16% in early trading this morning to $29.32, close to AMC’s $30 offer. AMC is up 5.1%.

But execs declined to provide details about two of Wall Street’s biggest questions: They didn’t say how many venues they might have to divest to pass muster with Justice Department antitrust officials.  They also just talked in broad terms about how they’ll square AMC’s ownership stake in ad sales company National CineMedia with Carmike’s holding in its chief competitor, Screenvision.

Aron says that AMC and Carmike have “little overlap.” The No. 2 chain has focused on big cities including New York, Los Angeles, Chicago, Philadelphia, San Francisco, Atlanta and Dallas while the No. 4 chain is mostly in the south and southeast.

The CEO acknowledged that there’ll be “some number of theaters [the Justice Department] will ask us to divest.” But for now “it’s best if we have these conversations with the Department of Justice as opposed to all of you.”

Justice officials opposed a planned merger of the two exhibition ad sales companies, National CineMedia and Screenvision. They also are investigating major exhibition chains’ clearance deals with studios to give them local monopolies on hit films, at the expense of smaller, independent theaters.

AMC also declined to offer details about potential changes in arrangements with the ad sales companies: AMC owns more than 25% of National CineMedia, and Carmike has 20% of it’s competitor Screenvision.

“Right now you should assume status quo in the relationships,” Aron says.

It might be difficult for that to continue.  RBC Capital Markets Leo Kulp says the Justice Department might force AMC to sell the Screenvision holding. Even if regulators leave things alone, there could be complications in Carmike’s pact which runs for another 26 years.

“Founding members of NCM are typically required to make periodic payments to NCM for any acquired theaters that are locked into a Screenvision contract,” the analyst notes. That makes it hard to figure out what AMC means when it says it will receive “substantial additional value” in NCM from the Carmike deal.

MKM Partners’ Eric Handler says he believes that AMC “will pass through its cinema advertising contributions from Carmike to National CineMedia. The exchange of cinema advertising payments should result in the addition of 18 million National CineMedia shares for AMC.”

One company that shouldn’t have to worry is Imax. AMC is its biggest domestic customer, and Aron says he sees “continued growth for Imax” even as the company builds up its own line of large screen venues and ones with Dolby. “We expect each of the three brands to be significantly more successful,” he says.

Imax shares are up 2.6% in early trading.