In a deal covering 60 theaters and 444 screens, AMC Entertainment Inc. announced yesterday that it has offered $ 17.5 million plus the assumption of debt to buy out TPI Entertainment Inc.’s 50% equity interest in Exhibition Enterprises Partnership.
If completed, the Exhibition Enterprises deal would bring the theaters back into the AMC fold.
In 1989, a cash shortage forced AMC to sell those same theaters to TPI for $ 122.3 million –$ 81.7 million in cash and $ 40.6 million in stock and notes. Under terms of the transaction, AMC continued to operate the theaters in exchange for a percentage of revenue.
The TPI theaters are located in the District of Columbia, Florida, Georgia, Kansas, Maryland, Missouri and Virginia. In 1991, AMC repurchased half of the circuit from TPI, a West Palm Beach, Fla.-based restaurant company.
AMC’s offer to buy the theaters outright is subject to the satisfactory negotiation of a definitive purchase agreement and regulatory approval.
Doug Lowell, who works for the Beverly Hills-based investment firm Rockefeller, Rothschild & Steel, said expected summer hits such as “Jurassic Park,””The Last Action Hero,””In the Line of Fire,””The Firm” and “Super Mario Brothers” will push AMC to close the deal quickly.
“They are positioning themselves for a big box office summer by buying more theaters,” Lowell said.
The deal on the table is large. At the end of 1992, Exhibition Enterprises’ total book value of the assets was listed at $ 123.7 million. AMC will assume $ 38 million in bank debt, as well as $ 13.6 million in capital lease obligations, if the deal is consummated.
For AMC, the deal would extricate the circuit from a looming deadline. According to the original terms of the Exhibition Enterprises sale, TPI had the right in fiscal 1995 to sell back the theaters to AMC at an after-overhead multiple of eight times cashflow — a figure above the current exhibition industry standard of roughly four to seven times after-overhead cashflow.
Rival exhibitors said the acquisition of the TPI theaters will give them a complete operating picture of AMC-operated multiplexes for the first time since AMC assumed management of the circuit in 1989.
Joe Pratt, portfolio manager with the firm W.H. Newbold’s Son & Co. Inc. in Philadelphia, said AMC’s potential repurchase of the TPI theaters is further evidence that the 1,148-screen circuit is headed toward sound financial footing.
Pratt said the circuit’s aggressive expansion in the late 1980s — yearly spending often topped $ 100 million — left the company “financially stretched.” He said a cash crunch forced AMC to sell the Exhibition Enterprises theaters to TPI.
Policies get credit
Pratt credited conservative management policies instituted by AMC chief operating officer Philip M. Singleton and chief financial officer Peter C. Brown for putting AMC “back in the black” of late.
He said AMC is able to do the deal because it is currently holds cash reserves of roughly $ 44 million and is generating roughly $ 15 million in free cashflow annually.
Pratt estimated that AMC’s ownership of the TPI theaters would bolster the circuit’s yearly revenues by $ 150 million on its consolidated income statement, while juicing the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) by $ 20 million to $ 22 million annually.
Entertainment analyst Lowell echoed Pratt’s assertion that AMC is getting muscular. He said the Exhibition Enterprises represents “a new stronger AMC that is, in effect, reacquiring assets.” He credited cost-cutting programs for improving operating margins and putting AMC back on track.
Stephen R. Cohen, chairman of TPI, said in a statement that TPI was selling its multiplexes to “enhance the capital base and allow the accelerated expansion” of its restaurant businesses, which include 184 Shoney’s and 70 Captain D’s restaurants in the Deep South.