Loews prunes its circuit in order to grow

Company to spend $1 bil on new screens

NEW YORK — Loews Cineplex Entertainment Corp. will close almost one-quarter of its theaters in the next five years, and is simultaneously planning to spend $1 billion building an even greater number of new theaters, it said in an SEC filing.

Loews said Tuesday it had filed with the SEC to sell 10 million shares, raising as much as $143 million in new equity, and was also planning to refinance its public debt with a private placement of $200 million in bonds.

This capital-raising will position the exhib for its expansion plans by strengthening its balance sheet. Not only will Loews’ overall debt decline about $100 million to about $600 million, but the new public debt will carry lower interest costs than its existing bonds.

Formed last month from the merger of Sony Corp.’s Loews Theaters and Cineplex Odeon Corp., Loews Cineplex is now the No. 2 exhib with 2,781 screens in North America. In a statement Tuesday, Loews CEO Lawrence Ruisi said money raised from the offerings would be used to “continue our global expansion.”

The size of the stock offering may end up being scaled back slightly, as Loews’ stock price has been weakening almost since the merger closed. Loews stock fell 50¢ to $13.25 Tuesday, compared with its price of around $20 just a few weeks ago.

“There is a lot of bearishness towards the industry” right now on Wall Street, one analyst said Tuesday, because earnings for many exhibs have been eroding over the past year as a result of the rescreening going on across the country. But the analyst said if Loews was able to outline its rebuilding program to investors, “they have a shot.”

In its prospectus for the stock offering filed with the SEC late Monday night, Loews Cineplex said it “believes that a significant opportunity exists to improve the company’s competitive position in many of its existing markets as well as to selectively enter new markets in North America that are currently underserved.”

The exhib said it will spend a total of $1 billion on new screens in the next five years, both in North America and overseas. Loews last week announced formation of its international division, which will target Europe and Asia, beginning with a joint venture in Spain that will build 175 screens in the next few years.

But the bulk of Loews’ new screen-building program will be in North America. In its SEC filing, Loews said it planned to open 12 to 15 theaters a year, with 16 to 20 screens each, over the next few years. It also plans to add screens to existing theaters.

Loews will fund the construction with its $1 billion credit facility, arranged earlier this year. About half of the credit line was drawn down June 10, Loews said in its SEC filing, but since about $100 million will be repaid by the stock offering, another $600 million will be available to be drawn down.

While it is building new screens, Loews will also be pruning its existing circuit. The company in its SEC filing said it had “preliminarily targeted 550 screens for closing” over the next five years. These are in addition to 85 screens in New York City and Chicago that the exhib must sell as a condition of the merger being approved by antitrust regulators.

These screens, predominantly old Cineplex theaters, are underperforming, Loews said, and only breaking even on a cash flow basis. Cash flow is earnings before interest, taxes, depreciation and amortization.

Loews also served notice that it will overhaul Cineplex’s theaters to improve their profitability, as it did with Loews theaters in recent years. Loews noted that cash flow per theater grew 18.3% between 1994 and 1998, while cash flow per theater at Cineplex locations was flat in the same time period.

Loews said it had improved its theaters’ profitability partly by “controlling operating costs” and it had already taken steps at the Cineplex theaters that it expected would save $10 million a year, increasing to $25 million a year over the next several years.

The rescreening program Loews plans is similar to one undertaken by Loews Theaters over the past five years, in which the exhib built 328 new screens while closing 250 old auditoriums.