Denver-based United Artists Theatres, the industry’s biggest circuit with 2, 378 screens, has decided to get better by getting smaller.
Under chairman Stewart Blair, who led a $ 680 million management buyout of the company from cable giant Tele-Communications Inc. in May, UA has embarked on a three-year plan to add roughly 450 screens in major markets at the same time that it is pruning back a hodgepodge of about 600 screens in America’s sticks.
“We have decided what we want to be when we grow up,” said UA president and chief executive Pete Warzel, who notes that UA will focus its expansion in such big-league cities as Los Angeles, New York, Philadelphia, Baltimore, Atlanta, Miami, New Orleans, Dallas, Denver, Minneapolis and San Francisco.
At the same time, UA will sell or close its theaters in such outback towns as Pinellas Park, Fla., Mineral Wells, Texas, and Idaho Falls, Idaho.
According to a disposal list of theaters obtained by Daily Variety, the circuit has at least 87 theaters and 336 screens currently up for sale, including blocks of 23 venues in Colorado, nine theaters in Oklahoma, seven theaters in Nevada and 18 movie houses in the deep South and Puerto Rico. Ron Leslie’s First Intl. circuit appears to be a likely bidder for some of the regional blocks.
While UA said the success of its big city business plan does not depend on the divestiture of small-town theaters, it acknowledged that it is in the process of closing several small deals for screens in Louisiana, Illinois and Arizona (to Wehrenberg Theatres).
The urbanization of UA places the company on a path that replicates its 1926 roots, when such shareholders as Mary Pickford, Douglas Fairbanks, Sam Goldwyn and Joe Schenck set out to build first-run movie houses squarely in the center of the nation’s metropolitan hubs.
“They are poised for even greater growth,” Savoy Pictures president Lewis Korman said. “UA is focusing on markets where they can be most productive. A theater chain is like a hub with spokes–the hub is the central management and the theaters are the spokes. To the extent that you leverage your management group into overseeing the most productive spokes, the greater profit you make.”
Indeed, UA’s consolidation has already driven up UA’s average screens per theater from 4.4 to 4.9 over the last year–a figure that should reach 5.5 by 1995. The increase has proven to increase attendance by 7% since 1991, Warzel said.
“We’re moving attendance up per screen very effectively in a short period of time, which moves up the cash flow per screen by an almost equivalent number,” Warzel said. “That’s what we are really after.”
Cash flow is key for UA, since it was one of the last major companies to be the subject of a leveraged buyout. Under the buy-out’s structure, Merrill Lynch Capital Partners invested $ 110 million, the UA management team put up $ 2.5 million, institutional investors chipped in $ 125 million, a banking group committed $ 300 million and TCI held onto $ 92.5 million in preferred stock. In the deal, UA borrowed at 9% and paid six times cash flow–far below the prices paid in the ’80s.
Savoy topper Korman said the deal was remarkable at face value, simply because Blair’s management team was able “to accomplish a leveraged buyout during an era when people would have thought that impossible.”
UA’s urbanization underscores exhibition’s continued reconfiguration, as several of the country’s largest exhibitors sell theaters to small-market expert Carmike Cinemas or regional entrepreneurs.
For example, Cinamerica Theatres announced yesterday that it is selling 16 theaters and 60 screens in Utah and Colorado to Carmike, pegged at roughly $ 17 million. AMC Theatres and Cineplex Odeon have been among the other sellers in the sticks. “Five years ago, it looked as if the mom-and-pop and regional circuits were quickly disappearing,” Warzel said. “Those are our buyers now.”