The share price has spiked more than 10.5 % today after Reuters reported that the exhibition chain hired JPMorgan Chase to look for a buyer — and has already talked to some of its rivals to see if they want to make a deal. Carmike declined to set its shareholders straight, saying it doesn’t comment on unusual market activity based on information that it characterizes as “rumors.”
The chain had 276 theaters with 2,907 screens at the end of 2014 — mostly in mid-sized markets — and has a market value of about $830 million. The company generated a net loss of $8.9 million on revenues of $689.9 million in 2014 as it invests to upgrade theaters, and buy additional ones. CEO David Passman has said that he wants to grow to at least 300 theaters with 3,000 screens.
With nearly $450 million in debt, and about $100 million in available cash, Carmike “could add between 400 and 500 screens to its operating base without the need to raise any additional capital,” Passman told investors this month. He added that “consolidation is the path that will ultimately drive the best long term returns for our organization and our stakeholders.”
But as he positioned the company as a buyer, many analysts also see Carmike as ripe takeover target. The No. 4 chain would be big enough to be meaningful for a larger player, but small enough to digest. And 2015 would be a good time to sell. Its stock price is up more than 32% since the beginning of the year as investors look forward to a booming box office from the coming barrage of potential hits including The Avengers: Age Of Ultron, Ant-Man, Star Wars Episode VII: The Force Awakens, Furious 7, Jurassic World, the James Bond film Specter, and The Hunger Games: Mockingjay Part 2.
Even so, buyers may fear that this year’s gains won’t be sustainable as theater owners grapple with growing competition from home entertainment. In January, Regal — which is controlled by billionaire Philip Anschutz — pulled the plug on the effort it launched last year to look for a buyer.
There’s a potential hang-up in Carmike’s 19% stake in theater ad sales company Screenvision. The exhibition chain’s biggest rivals — Regal, AMC Entertainment and Cinemark — are aligned with competitor National CineMedia. That obstacle appeared to have been overcome last year when the ad companies agreed to merge. But it remains unresolved after the Justice Department decided in November to sue to block the deal on antitrust grounds. The trial will take place April 13.
Meanwhile, Passman has championed alternative content to help fill seats on slow week nights. Last year the company bought a 21-venue theater chain, Digiplex, in part to land its founder: Bud Mayo, the leading apostle for alternative content.