UPDATE, 4:00 PM: Carmike just issued a statement, apparently in response to the Mittleman Bros. letter opposing its sale to AMC Entertainment.
It says the board “unanimously” supported the deal “after thoughtful consideration of the options available to the Company, including the level of interest from other third parties and the value potential of Carmike’s standalone plan. Carmike did not receive any offers that provided greater value than AMC’s $30 per share offer. We look forward to talking more with Carmike shareholders about the Board’s determination.”
PREVIOUS, 11:34 AM: The $30 a share price that Carmike Cinemas accepted to sell itself to AMC Entertainment, is “hideous” — and about $10 too low — the No. 4 exhibition chain’s top shareholder, Mittleman Bros., told the company in a letter today.
The investment firm, which owns 7.1% of Carmike’s shares, says that it plans to oppose the deal.
Mittleman also will “reach out to other large Carmike shareholders beginning today and over the next few weeks to encourage them to vote against this merger based on its current terms,” Managing Partner Chris Mittleman says in a letter to Carmike CEO David Passman and Chairman Roland Smith. “We expect most will be in substantial agreement with our view” that the chain sold for too little.
Mittleman says he would accept “no less” than $40 a share in cash, or $35 in AMC stock, for Carmike. The current deal was made “with no apparent auction process, and no go-shop provision.”
The company’s share price jumped about 20% after the deal with AMC was announced late Thursday. Today Carmike is up about 1% to $30.10 — which suggests that investors believe a higher price is coming. AMC is down 0.6%.
Mittleman’s letter notes that Carmike’s sale price, at about $1.1 billion including debt, equals about eight times its cash flow (measured as earnings before interest, taxes, depreciation and amortization, or EBITDA). After factoring in potential cost savings, the multiple drops to 6.5 times EBITDA — and with other adjustments could be as low as five times.
By contrast, Mittleman says, London-based Vue Entertainment sold in 2013 to 8.5 times EBITDA. And the $2.75 billion that China’s Wanda Group agreed in 2012 to pay for AMC was 9.1 times EBITDA.
“If this had been a stock swap, then an initially lower valuation might have been tolerable, given that the upside potential in the combined entity would be shared by both parties,” the letter says. “But here, AMC is unwilling to share the immense benefits this deal will bring to their shareholders, and Carmike failed to extract a fair price in relinquishing that upside potential.”
This morning B. Riley & Co analyst Eric Wold downgraded Carmike shares to “neutral” saying that while a higher bid for the company is a “possibility,” it might not materialize and there’s “uncertainty” about whether the Justice Department will approve the deal.
AMC “is getting a steal given the attractiveness of the [Carmike] assets and long-term value they can drive into AMC’s circuit,” he says.