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Lear near unloading Act III theater chain

NEW YORK — Norman Lear is moving toward the sale of his Act III Theatres Inc., the 10th-biggest exhibition company, in a deal Wall Streeters believe could fetch as much as $550 million.

Lear, who owns 68% of Act III, has hired investment bank Donaldson Lufkin & Jenrette to advise on the exhibitor’s strategic alternatives, sources said. DLJ has begun distributing a briefing book on Act III to interested companies.

People close to Act III believe the former television producer, who recently turned 75, has estate considerations on his mind and wants to ensure his shareholding in the exhibition company can be more easily sold than under the current structure. Act III execs declined comment.

But while Lear may be motivated by personal issues, he could get the benefit of a trend toward consolidation in the exhibition industry. Sony Corp.’s theater unit and Cineplex Odeon Corp. currently are negotiating a merger that will create an industry giant dominating the New York market.

Act III operates 673 screens in 122 theaters, clustered in the Pacific Northwest, Texas and Nevada. Investment bankers say the company is likely to be hotly pursued, with potential buyers including foreign exhibitors, U.S. majors such as Regal Cinemas and financial investors.

Regal execs did not return calls seeking comment, but the company has been an aggressive acquirer of smaller exhibitors. Investment bankers said foreign buyers could include Greater Union of Australia.

Some bankers said AMC Entertainment could be a buyer, but a spokeswoman for AMC Entertainment said acquisitions “are not part of our growth strategy.” It’s also not clear whether AMC has the financial resources to do such a big deal.

An outright sale is only one option Lear is likely to consider, sources said. Other alternatives include a public stock offering, bringing in a partner or arranging a private placement of new equity by an institutional investor. Institutional investors already own part of the 32% of the stock not owned by Lear.

Lear is likely to pick whichever option can raise the most money, of course, although some Wall Streeters say taxes will be an issue. That reduces the chance Lear will go for an outright cash sale; he may prefer to sell to a company that could issue stock, which reduces taxes.

Whatever happens, Lear wants to improve the liquidity of his holding, which likely will be worth at least $100 million. Bankers say Act III likely will be valued at seven to nine times earnings before interest, taxes, depreciation and amortization, which was $59 million in 1996.

That puts a range of $413 million to $531 million on Act III. The exhibitor had about $273 million in long-term debt as of March 31, according to a recent Securities & Exchange Commission filing, so the value of the stock outstanding is $140 million to $258 million.

One banker said Act III owns more real estate than usual for exhibitors, which will enhance the value of the company. But another said high-priced sales of exhibition companies had not done well in the past, pointing to the leveraged buyout of United Artists Theater Circuit five years ago.

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