A 2015 Reuters news story that Carmike Cinemas publicly dismissed as a mere “rumor,” although it privately knew was accurate, apparently ended up costing its shareholders dearly this month when the company agreed to sell itself for $1.1 billion (including debt) to AMC Entertainment.
AMC was prepared to spend nearly 19% more for Carmike a little more than a year ago according to a fascinating behind-the-scenes chronology of the transaction in a proxy statement that the No. 4 exhibition chain filed this morning at the SEC.
That disclosure could be important as some of Carmike’s largest shareholders, including Mittleman Bros. (which owns 7.1%) and Driehaus Capital Management (with 8%), say they plan to oppose the deal claiming that the board settled for too little.
Carmike says the $30 a share price is the best it could negotiate, a point that the proxy appears to support.
That wasn’t the case a little more than a year ago when the companies were negotiating a potential sale: AMC was prepared to pay $37 for each Carmike share, with 60% in cash and 40% in AMC stock, the proxy says. That would have been a 19.2% premium to Carmike’s closing price on March 12, 2015.
That plan apparently blew up the next day when Reuters reported that Carmike had hired JPMorgan Chase to help explore “strategic alternatives” that could include a sale. It added that the company had approached domestic and foreign competitors about a potential deal. The news sent Carmike shares up 10.5%.
Today’s filing shows that Carmike knew the story was solid. It hired JPMorgan in October 2014, the same month it signed a confidentiality agreement with AMC to talk about a possible deal.
The board was “actively involved in overseeing these discussions,” the proxy says. And in December — three months before the Reuters report — JPMorgan presented a list of “other potential strategic buyers.”
But Carmike didn’t simply decline to comment about the report. It characterized the disclosure as a mere “rumor.” That’s a response companies frequently offer when faced with news they wish had not gotten out — even though use of such a pejorative term could mislead shareholders by suggesting that the disclosure is unreliable or untrue.
In any event, things changed: On April 10 “AMC informed Carmike that it was no longer interested in pursuing a potential transaction with Carmike,” the proxy says.
That was that, until late 2015. By then AMC chief Gerry Lopez had left to become CEO of Extended Stay America. On December 10, Carmike execs told their board that they had been approached again by AMC. Four days later the No. 2 chain announced that it had hired a new CEO, Adam Aron.
He and his team met with Carmike CEO David Passman and his team on January 20 — and proposed to buy their company for $26 a share in cash and stock. The Carmike execs reminded him that AMC had offered $37 earlier in the year. AMC said it would consider a range of $26 to $30.
On February 1, Aron told Passman that AMC would offer between $28 and $29. The Carmike chief said that wouldn’t fly with his board. Aron raised his offer to $30 in cash on February 5, warning that his board might reduce it. Carmike agreed to keep talking, and asked JPMorgan to look for other buyers.
The financial advisors told the Carmike board at a February 15 meeting that no strategic buyer aside from AMC, Regal, and Cinemark had the financial wherewithal to buy the company. What’s more, non-U.S. strategic buyers “were unlikely to be interested” partly due to the hit they’d take due to the strength of the dollar vs other currencies.
Still, the board asked JPMorgan to check out two unnamed companies that had expressed an interest in Carmike. One said it was out. The other signed a confidentiality agreement enabling it to see Carmike’s still-unreported 2015 financial results, and projections for early 2016.
On February 18 AMC turned the screws on Carmike, telling execs that the board had reduced its offer from $30 a share to $29.85.
On March 1, the company that had signed the confidentiality agreement dropped out. That left the chain with just one potential buyer: AMC.
At a March 3 board meeting, Carmike’s directors told Passman to see whether AMC would go back to $30. He left the meeting to make the call, and returned saying that it had agreed. The companies announced their deal later that day.
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