Although he expects a “hysterical letter of protest to come out any second” from shareholders who think his new $33.06-a-share offer is still too low, “I want to make one thing perfectly and unmistakably clear,” he says. “This new $33.06 price and 70-30 cash-stock mix is AMC’s best and final offer to acquire Carmkie. This is it. We’re done. There’s no more water in this well.”
Aron says that he has spoken to dissident shareholders, as well as others, and “we’ll all find out together” how they’ll vote in the fall, after the companies file a new prospectus with the SEC. He’s confident that a majority of Carmike shareholders will support the sweetened offer. But “there is a significant risk that this transaction will break.”
If Carmike holders reject the terms, “we’re fully prepared to stop pursuing Carmike and AMC will be delighted instead to focus on our other billion-dollar acquisition.” That would be the recently announced $1.2 billion cash-and-stock agreement to buy Europe’s largest chain, Odeon & UCI Cinemas Group, from Guy Hands’ private-equity company Terra Firma.
With Carmike or Odeon, AMC would be the world’s largest exhibition chain. It’s owned by China’s Wanda Group.
“Just as Carmike was a pretty impressive Plan A, Odeon is a pretty remarkable Plan B,” Aron says. “We’ll take our billion dollar bat and ball and go to Europe with it….If Carmike doesn’t go forward there will be lots of other M&A activities and opportunities that we’ll pursue in 2017 and beyond.”
Aron calls AMC an “opportunistic buyer” but “can’t even conceive” of a possibility where it might compete with Wanda on a deal. Wanda is China’s largest theater owner, and with “the scale that Wanda Cinemas has in Europe [it] has a massive lead over everybody else.”
Carmike shareholders who believe the chain is worth as much as $40 a share might think differently without an AMC offer “artificially buttressing the value of Carmike shares….We’re not going above $33.06. I don’t think I could be more clear.”
He adds that investors wanting more “stubbornly insist” on comparing the deal terms to other transactions with higher valuatiuons in Europe and Asia. But the leading U.S. companies are publicly traded, and provide “the only comps that make sense” for a U.S. deal.
AMC says that some investors also don’t appreciate some potential stumbling blocks to a Carmike deal.
AMS is already working with the Justice Department, which requested information about potential local overlaps in its and Carmike’s theater holdings. Antitrust officials might insist that they divest some theaters.
AMC will have to make quarterly payments to ad sales company National CineMedia to compensate for the Carmike screens that will continue to be represented by Screenvision. That contract runs for another 25 years. Carmike has a minority stake in Screenvision while AMC owns 18% of NCM.
The companies also have limited access to tax benefits from previous losses.
AMC and Carmike shares each are down about 1.5% today, which Aron attributes to short selling by Carmike investors who hedged their bets by also buying AMC shares. “We’ll work through the short selling relatively fast and the fundamentals will reapply.”