Don’t rule out the possibility that China’s Dalian Wanda Group will eye the U.S. movie production business now that it has agreed to pay $2.6B for AMC Entertainment. The exhibition chain’s also considering allowing texting during some showtimes. AMC chief Gerry Lopez, 52, says all kinds of things can happen these days, and especially following his blockbuster deal last week with Wanda’s billionaire chief Wang Jianlin. It’s Wang’s first major foray outside of his country, as well as the biggest buyout by a Chinese company of a U.S. entity. If approved by government officials, Wanda will pick up the No. 2 movie chain — whose initials used to stand for American Multi-Cinema — with 5,034 screens at 346 theaters in the U.S. and Canada.
The deal cures AMC’s biggest headache. It needed to pay off its private equity owners: J.P. Morgan, Apollo Management, Bain Capital, The Carlyle Group, and Spectrum Equity. The company had hoped to go public but that effort stalled as AMC continued to spill red ink. In the 52 weeks that ended in March it generated a net loss of $82M — an improvement from the $122.9M loss in the same period ending a year ago — on revenues of $2.6B, up 6.7%. Wanda’s purchase price includes the assumption of AMC’s $2.2B in debt, which required the chain to pay about $160M in interest in its latest fiscal year.
What happens now? Deadline Executive Editor David Lieberman spoke with Lopez, a former Starbucks exec, about AMC’s plans with Wanda and other hot-button issues in exhibition. This interview was edited for length and clarity:
DEADLINE: Wanda is involved in film and TV production as well as theaters. Does it plan to enter the production business in the U.S.?
LOPEZ: No plans at the moment. But who knows what the future brings? Buying AMC is part of a larger, greater vision that Chairman Wang does have. I can tell you that in the exhibition arena, his aspiration is to have a global footprint. And global goes beyond China and the U.S. I would not anticipate by any stretch that we will be the only acquisition he will make outside of his home country.
DEADLINE: From Wang’s public comments about the need to refurbish your theaters it sounds like he considers AMC to be a fixer-upper.
LOPEZ: That’s not quite the plan. We are a fixer upper relative to his own circuit. Their circuit basically did not exist five years ago. Our leases run for 20 years. So many of our assets are older than their exhibition company is. What we are, though, is an opportunity to invest in remodeling the buildings. So it’s a question of perspective.
The circuit is in great shape. We track very, very closely our guest feedback regarding the state of repair of the buildings, the cleanliness of the building, the service they’re receiving, did the show start on time. And the scores on the general repair of the facility and the cleanliness candidly have never been higher than they’ve been over the last three months. We put a lot of effort into, clean the bathrooms. This is a retail business. The movie may be great. But if the bathroom isn’t clean, trust me, I hear about it.
DEADLINE: The announcement says Wanda will invest $500M in AMC “over time.” Can you be more specific?
LOPEZ: It’s more than a year and less than five. This is about doing the things we’ve already been doing that we know work and accelerating the pace of some of these remodels and deployment of some of these ideas. This isn’t like a kid in a candy store.
DEADLINE: What has to be done first?
LOPEZ: We have a lot of debt on our balance sheet accumulated over the years. We want to start retiring some of that and over time bring the debt load down.
DEADLINE: A lot of theaters that couldn’t afford to make the transition to digital projection are expected to be up for sale soon. Could you be a buyer?
LOPEZ: Absolutely. We’ve always been buyers and sellers, mostly buyers. This transaction does nothing but enhance our ability to be buyers.
DEADLINE: But you’re selling your Canadian theaters. What’s their status?
LOPEZ: They are under review. We expect to have, with any luck, an announcement we can make there in two to four weeks. Success up there has been hard to come by.
DEADLINE: You have a new contract with Wanda. How long does it last?
LOPEZ: My management team and I have all signed new deals with Wanda. We’re not getting into the details. You can say that they’re longer in scope than 18 months. In our industy they’d be considered long term.
DEADLINE: Your IPO is still technically alive, but you haven’t moved on it. What’s the problem?
LOPEZ: It’s just a tough, tough market to try to go public. You needed stability in the equity market and we haven’t had it. Inside of that equity market, the IPO market has been a nightmare. Look at Facebook. This is the most highly anticipated IPO since Google. Look at what happened to it. And then you needed an industry that was on the upswing. Well, as I think everybody in the industry knows, 2011 was challenged. 2012 is looking very very good. But to have a successful IPO you need all three things. You need the blonde, the brunette and the redhead to want to dance together to have a good show.
DEADLINE: AMC’s financials show that you had problems last year. Was that just due to the movies that studios released or did you have operational problems as well?
LOPEZ: It’s all movie quality and quantity. What we had in 2011 was a confluence of fewer movies and each one of the movies grossed less. I’ve got to pay the rent; I’ve got to pay whether 30 people show up or 3,000 people show up. We’re in the high rent district. When the industry downturns we will suffer more than the other guys. When the industry goes the other way, we tend to do better. For the last 16 weeks in a row we have outperformed the industry and a lot of it has to do with the movies. For the last 10 weeks we seriously outperformed the industry because you have more IMAX and more IMAX that’s doing better. When that happens, we will outperform anybody.
DEADLINE: Some theater chains say that so many young people want to use their smartphones to text during films that they may allow it during some showings. Would you consider that?
LOPEZ: It’s a source of much debate. We continue to look at it. I will declare, I am not a fan. It annoys me. We get it. We understand it. But by God, man. We’re trying to sell you an experience. Give me a chance to deliver that experience to you. That’s more of a personal statement than a corporate edict at this point.
DEADLINE: Sony wants theaters to share more of the expense for 3D glasses. Where do those conversations stand?
LOPEZ: What we have has worked and continues to work. I heard what Sony said. The studios make investments behind 3D. So do we, and so did RealD. We all have a share of the expense associated with 3D. We remain open minded to a new economic model on the glasses. We just haven’t seen one that appears as fair as the one that we have in place. I’m not rushing to change something that seems to work just fine for three years across the entire industry.
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