NEW YORK — Leveraged buyout giant Kohlberg Kravis Roberts has the edge over Hicks Muse Tate & Furst in last-minute negotiations for the acquisition of Norman Lear’s Act III Theaters expected to conclude within days, Wall Street sources said Wednesday.
Both bidders put in high-priced offers said to be close to $700 million, which is at the upper end of expectations of what the exhib would fetch. KKR’s bid is thought to have been higher, and most Wall Streeters expect it to prevail.
Lear’s advisors, Donaldson Lufkin Jenrette, were in the middle of negotiations with the two final bidders Wednesday and did not return calls. Act III execs were also in meetings all day and did not return calls.
KKR declined comment and a spokesman for Hicks Muse could not be reached for comment.
Another LBO firm in the bidding, Apollo Partners, is believed to be have submitted an offer in a partnership with LBO firm Freeman Spogli, but the bid appeared to have fallen short. One source said Apollo was still lurking in the background of negotiations, however.
People with knowledge of the talks said it was likely to continue for the next few days as DLJ attempts to wrap up a deal. At a price of $700 million, Act III’s 68% shareholder Norman Lear would emerge with $276 million (after repayment of the exhib’s $293 million of debt).
Such a price, about 10 times Act III’s 1998 cash flow, would likely spur other exhibs to sell, as it would be well above what exhibs trade at on the stock market.
LBO firms like KKR and Hicks Muse want to break into exhibition because they think the sector is ripe for consolidation and has strong growth prospects, particularly overseas. LBO buyers also believe exhib companies are relatively cheap compared to other industries, LBO execs say.
Virtually all the bids for Act III came from LBO buyers. Exhibs like Regal Cinemas and AMC Entertainment participated in the bidding early on, but either withdrew or were ruled out because the price was higher than either was willing to pay.
Some of the LBO firms bidding for Act III were prepared to buy it and merge it with United Artists Theatre Circuit, which is also on the market. Indeed there was a rumor that Apollo and Freeman Spogli had teamed up with UATC in their Act III bid, although this could not be confirmed.
Apollo is said to have acquired preferred stock in UA from Lehman Bros. to give the LBO firm negotiating leverage with UA execs. Apollo execs have refused to comment and UA execs say they were unaware of the transaction.