Reflecting the trend toward consolidation in exhibition, AMC Entertainment and Loews Cineplex have agreed to a merger that will create a 5,936-screen chain rivaling the largest circuit, Regal Entertainment, and its 6,264 screens.
Deal, the terms of which were not disclosed, is structured as a merger, though the resulting company will be called AMC Entertainment and be led by AMC chief Peter Brown. Corporate headquarters will be in Kansas City, Mo.
AMC was taken private last year, and many see the merger as preparation for its return to the stock market.
In Hollywood, studio execs said they had been expecting the merger, since the two exhibs talked about such a move last year. While some distrib players said the new super-sized chain wouldn’t impact their business, others predicted the chain would gain more clout in negotiations on how to split box office revenues.
An integration committee, chaired by Brown and Loews chief Travis Reid, will determine the fate of the Gotham-based operations and whether the Loews nameplates stay on current theaters. But it’s likely that film-buying activities will be eventually consolidated in Kansas City.
The companies said it would take six to nine months for the deal to close, pending antitrust review and the completion of financing.
Merger comes during a brisk period of financial wheeling and dealing in the exhib world. Just before Christmas, a private consortium led by JPMorgan Partners and Apollo Holdings bought out AMC stockholders in a $2 billion deal.
In June of last year, financiers Bain Capital Partners, Spectrum Equity Investors and the Carlyle Group purchased Loews for $1.5 billion.
The private holding companies that own AMC and Loews will also be merged, with AMC’s investors controlling about 60% interest in the new company.
AMC rep Pam Blase said the advantages of the exhib union “are the broad market coverage we will have. We have markets that don’t necessarily overlap.”
The nearly 6,000 screens operated by the merged company are in the 447 theaters that AMC and Loews currently either own or have an interest in, located in 30 states domestically and 12 countries overseas.
Wall Street analysts largely gave their blessing to the marriage.
Banc of America Securities’ Michael Savner issued a report saying the deal made sense “given the similar urban focus of both companies and the benefits that can be achieved through economies of scale.”
Matt Harrigan of Janco Partners said of the expanded AMC, “Certainly, over a period of time, this becomes a public company again.”
Though the AMC-Loews merger will create a Regal rival, the Knoxville, Tenn.-based megachain applauded the deal — as validation of its bigger-is-better business model. “Consolidation is a good strategy in this industry,” said Regal senior marketing VP Dick Westerling.
Regal shares actually perked up on the AMC-Loews news, finishing Tuesday’s trading at $18.75, up about 16¢.
Lehman Brothers analyst Anthony DiClemente agreed, pointing out that Regal actually stands to directly benefit from the AMC-Loews merger by expanding its onscreen advertising network.
In March, Regal and AMC merged their blurb sales operation to form National CineMedia which would sell ads on the two circuits’ 9,500 screens.
Regal has been enthusiastically promoting onscreen ads as a major source of revenue for exhibs.
At about the same time, though, Loews enlisted its screens with rival cinema advertising outfit Screenvision, anchoring its 14,525-screen network. The Screenvision-Loews contract runs through 2008, said a Loews rep.
But after the pact expires, Loews will now likely move over to the AMC-Regal effort, DiClemente noted, and “this would represent an incremental 2,200 screens on the (National CineMedia) advertising platform, allowing for further unit and CPM growth.”
Reps for Screenvision did not return calls requesting comment.
More pressure on studios
Having two giant players in the exhib market will continue to put pressure on studios to share a larger percentage of the gross with exhibs as they pursue ever-wider release patterns for their films.
“It ain’t your father’s business anymore,” said Tom Sherak, a partner at Revolution Studios. “It’s become tougher for studios because it’s been a buyer’s market for the last five years. If you want to open a movie, you need to play those screens.”
Negotiations between studios and theaters over how to split the box office has always been a divisive — and sensitive — subject for studio execs. Taking pains to call both Loews and AMC “terrific customers,” 20th Century Fox distrib chief Bruce Snyder said “There’s always enormous pressure. If they put any more pressure on terms, I’m going to kill myself.”
Before the merger closes, however, the Justice Dept.’s antitrust division will have to give its OK. As it did when Sony bought Loews in 1998, the feds may require the exhibs to divest some theaters where it thinks the merger would create a monopoly in the market.
For instance, in Gotham’s Times Square, the AMC Empire 25 and the 13-screen Loews 42nd Street E-Walk, two of the top-grossing theaters in the country, are literally across the street from each other.
Because the places where AMC and Loews are the most competitive are major markets, it could create a golden opportunity for other chains to pick up some crown jewels.
The companies said they aren’t yet ready to part with any of their properties.
“We intend to work with the DOJ, but our hope is to have both AMC and Loews theaters all continue to operate,” said AMC’s Blase.
Reverberations from the merger may also be felt in the online ticketing arena.
Merger puts the sites in a tricky situation, since Fandango doesn’t sell tix for AMC shows or any of the other chains that invested in MovieTickets.com, and vice versa.
“We have a variety of different partners and vendors we work with,” Blase said, “and we can’t speculate on what we will do going forward. The integration committee will examine all of those issues and make determinations.”