Updated with comments from analyst briefing: AMC Theaters is poised to become the world’s largest exhibition company with an agreement this morning to buy Europe’s largest chain, Odeon & UCI Cinemas Group, from Guy Hands’ private equity company Terra Firma for cash and stock valued at $1.2 billion.
AMC says that this deal “does not impact” its $1.1 billion (with debt) deal to buy Carmike Cinemas. Shareholders of the U.S.’ No. 4 theater chain are due to vote on it this Friday. Some of its biggest investors say the $30 a share offer is too low.
AMC chief Adam Aron says this morning that while he remains “committed” to the deal, “the likelihood of an AMC/Carmike transaction continues to be at considerable risk” if they hold out for more. Carmike shares opened down 1% while AMC is up 3%.
With the Odeon & UCI pact, “we win with Carmike, and we win without Carmike,” Aron told analysts.
The shareholder vote “will be the high drama over the next several days,” he added. “And we’ll all find out [the results] together.”
Odeon & UCI has 2,236 screens at 242 theaters and would operate as a London-based subsidiary of AMC under the chain’s current Group CEO Paul Donovan. An acquisition would give AMC more than 7,600 screens at 627 theaters in eight countries.
AMC is controlled by China’s Wanda Group, which has 6% of the commercial theaters in the country. Although the operations are run separately, “when we go to Hollywood we can go to Hollywood together, and when we talk to vendors we can talk to vendors together,” Aron says.
But he doesn’t see AMC’s expansion as “something that will work against studios in a zero-sum game…We can deliver more value to our Hollywood studio partners.”
The agreement with Odeon & UCI is “conditional” on approval by antitrust officials at the European Commission. The companies expect the deal to close by year end. AMC has one movie theater in the UK, leading Aron to say that there’s “no antitrust risk.”
Odeon & UCI is the largest theater operator in Europe generally, and No. 1 in the UK and Ireland, Italy, and Spain. It generated $1.16 billion in revenue in the 12 months ending in March.
“This is a once-in-a-generation opportunity to acquire Europe’s leading cinema chain and create the world’s biggest and best theatre operator,” Aron says.
He recognizes that the UK’s Brexit vote to leave the European Union creates “uncertainties.” But the dramatic devaluation of the Pound to a 30-year low vs the U.S. dollar enabled AMC to make a “highly favorable” deal that “will generate long-term value for our guests, our studio partners and our shareholders.”
“The Pound is just dirt cheap,” Aron told analysts. “We believe we should strike while the iron is hot….We got a bargain price.”
Rates for the currency conversion and the stock value of the deal will be set in the 20 days before it closes.
AMC is the largest owner of Imax venues in the U.S. and Aron sees at least 40 Odeon & UCI locations that can accommodate the large screens.
AMC should be able to increase earnings before interest, taxes, depreciation, and amortization by “50% or more over next four years” as the company renovates venues. AMC has been in the forefront of exhibition chains that have profited by reducing the number of seats in some venues and charging higher ticket prices to moviegoers who’d like to sit in plush recliners.
AMC says the deal won’t stop it from paying a quarterly dividend.
Guy Hands says that in the 12 years Terra Firma has owned Odeon & UCI “over £600 million was invested in growing the business and delivering our long-term transformational strategy….We are confident that under AMC’s ownership, Odeon & UCI will continue to grow and thrive.”
The acquisition won’t result in major cost savings, and is “more about expanding the AMC recliner model, enhanced food offerings and technology to the circuit, which is far more similar to the AMC circuit than Carmike,” says Stifel Research analyst Benjamin Mogil.