National CineMedia shares are down more than 8% in post-market trading after the two leading movie theater ad sales companies decided it wasn’t worth what they called “the ongoing cost and distraction” of fighting the Justice Department, which in November sued to block their merger on antitrust grounds. The trial was scheduled to take place April 13.
“While I am disappointed that our shareholders and our advertising clients and exhibitor partners will not realize the benefits of a merger with Screenvision, I remain confident in our ability to continue to innovate and build our business,” NCM chief Kurt Hall says.
Screenvision CEO Travis Reid adds that dominant shareholder Shamrock Capital, along with Carmike Cinemas and Technicolor, “are behind us, and are working with us toward seeking opportunities and investments that will help us grow the company.”
The trial over the $375 million deal was due to take place at the most demanding time of the year for the companies: They meet with theater owners at the annual CinemaCon gathering in Las Vegas in late April. Then, in May, the firms hold upfront presentations for ad buyers. Now they can have th emeetings “without agencies and advertisers wondering whether we’ll be here,” Reid tells me.
NCM will pay a $26.84 million termination fee to Screenvision. Its member companies — led by Regal, AMC, and Cinemark — will pay a portion of the fee that corresponds to each one’s ownership stake. In the end, NCM will be out $11 million, including legal expenses. A secured credit facility for the merged entity also has been revoked. Reid says Screenvision will use the cash to pay its legal bills, reduce debt, and hold other funds for general corporate purposes.
Both companies say that they’ll be fine. NCM reaffirmed its financial outlook for Q1 and for all of 2015, in each case showing revenues up at least 7% over last year. It continues to grow its local and regional ad sales business, and says it’s making “significant progress” on expanding its base of national advertisers.
Reid also says that Screenvision’s network “is more secure than ever, upcoming bookings are strong, our upfront strategy is really working.”
Antitrust Assistant Attorney General Bill Baer said the government considered the merger “a bad deal for movie theaters, advertisers and consumers”and “exactly the type of transaction the antitrust laws were designed to prohibit.” Specifically, the complaint said that a merger would force advertisers to pay higher rates, but leave theaters with less of the revenue. That likely would result in theaters “having to raise ticket or concession prices to consumers or forgo theater upkeep and improvements.” It also cited statements by NCM and Screenvision execs that indicate they recognized that they would find it easier to raise prices if they stop competing with each other.