Cinemark is on the block

Move follows earlier proposal to take co. public

Cinemark has hired a pair of blue-chip investment firms to gauge interest in the sale of all or part of the Dallas-based circuit.

Goldman Sachs and Lehman Bros. recently circulated briefing books to prospective buyers of Cinemark, which operates about 3,000 screens in the U.S., Canada and Latin America. Move follows an earlier proposal to take the company public, which was abandoned in 2002 when market conditions soured.

The nation’s biggest movie chains such as Regal Entertainment, AMC Entertainment and Loews Cineplex are expected to consider acquiring at least a portion of the circuit, situated mostly in mid-sized markets with a concentration in the U.S. South. Various potential financial investors are also likely suitors.

Gotham-based private equity firm Cypress Group and Cinemark chairman-CEO Lee Roy Mitchell each hold sizeable minority stakes in the closely held company, with Mitchell family members holding voting control. A top exec at a rival circuit questioned whether Mitchell is interested in selling his stake and suggested the hiring of investment bankers may signal that Cyprus is itching to cash out on its investment.

But the dramatic consolidation of assets in the exhibition industry of the past two years is expected to continue for awhile. So many have predicted Cinemark would eventually be folded into another big circuit in an attempt to exploit certain economies of scale.

Even the biggest exhibs like Regal — formed from three sizeable circuits two years ago — have been unable to turn their greater screen girth into improved film-rental contracts. But they have lowered their costs on concessions, which already produced profit margins of up to 80%.

“The synergies aren’t huge and have never panned out as expected,” mused one Wall Streeter, who asked to speak anonymously. “But they can cut costs by rolling up the executive structure with one chief financial officer and that kind of thing.”

AMC and Loews are currently discussing the possible merger of their circuits, a move that would create another mega-circuit rivaling the expanse of Regal’s 6,000-plus screens.

Apollo Capital, another Gotham equity firm, would like cash out of its current majority stake in AMC in the process. But other details of the proposed transaction have proven nettlesome enough that talks once expected to produce a preliminary agreement by Jan. 1 have lingered into the new year.

Loews majority owner is Onex, a diversified Canadian conglom. It’s considered unlikely Onex would completely exit the exhibition biz, perhaps retaining an equity participation in the combined entity following an AMC-Loews merger.

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