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On Dec 20, AMC Entertainment Holdings Inc. (AMC - Free Report) , a leading global movie theater chain, received conditional regulatory approval for its proposed acquisition of a smaller rival Carmike Cinemas Inc. . The deal is valued at $1.2 billion of which $585 million will be paid in cash and $250 million in AMC's Class A common stock. AMC is also assuming about $367 million in debt of Carmike. With Carmike in its kitty, AMC Entertainment is set to become the largest movie theater operator in the U.S.
AMC Entertainment, which is controlled by the Chinese conglomerate Dalian Wanda Group, is currently the world's biggest theater operator. In the U.S., it operated nearly 388 theaters with a total of 5,295 screens in 33 states and the District of Columbia as of the end of Sep 2016. The company’s U.S. box office revenues were about $1.9 billion in 2015. On the other hand, Carmike had 271 theaters with a combined 2,917 screens in 41 states as of the end of Sep 2016 while its U.S. box office revenues were around $490 million in 2015.
However, the regulatory approval is subject to some stringent conditions. The U.S. Department of Justice has stated that AMC Entertainment needs to sell 15 theaters in local markets across nine states where it competes with Carmike. Further, the company has to divest most of its holdings in National CineMedia, a cinema advertising company, and transfer 24 theaters to a rival theater advertising company, Screenvision LLC.
The movie theater operators are currently going through a rough patch. The industry has been bearing the brunt of a Bloomberg report for the last four weeks. The report stated that the Hollywood studios (film makers) are contemplating the implementation of a new business scheme. The strategy involves making newly released movies available for home viewing at a premium within as little as two weeks of its screen debut. The news has sent shockwaves across the movie theater (exhibitor) industry straight away for it will destroy their exclusive right of offering any newly released movie in theater alone in the first 90 days.
Several film studios are negotiating about this path-breaking business model in which film makers will be able to offer movies to online video streaming services for a premium of around $25 - $50 extra as rent. Notably, stagnant home video sales have compelled film makers to think about a new strategy to offer more avenues to consumers.
Consequently, the concern over losing exclusive rights offering new movies has taken a toll on stock prices of the major U.S. movie theaters. Share prices of companies, namely, Carmike, AMC Entertainment, IMAX Corp. (IMAX - Free Report) , Regal Entertainment Group and The Marcus Corp. (MCS - Free Report) , have plunged following the report.
Price Performance of AMC Entertainment
Year to date, the Zacks categorised Leisure and Recreation Services industry (of which movie theater industry is part), has registered a negative growth of 7.14%. In contrast, AMC Entertainment posted an impressive growth of 39.38% in the same time period. However, if the 90 days exclusivity right of new movie releases receives a setback, then the movie theater industry will suffer as a whole and AMC Entertainment is no exception. We believe this is the primary reason behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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AMC Entertainment's Carmike Buyout Gets Regulatory Nod
On Dec 20, AMC Entertainment Holdings Inc. (AMC - Free Report) , a leading global movie theater chain, received conditional regulatory approval for its proposed acquisition of a smaller rival Carmike Cinemas Inc. . The deal is valued at $1.2 billion of which $585 million will be paid in cash and $250 million in AMC's Class A common stock. AMC is also assuming about $367 million in debt of Carmike. With Carmike in its kitty, AMC Entertainment is set to become the largest movie theater operator in the U.S.
AMC Entertainment, which is controlled by the Chinese conglomerate Dalian Wanda Group, is currently the world's biggest theater operator. In the U.S., it operated nearly 388 theaters with a total of 5,295 screens in 33 states and the District of Columbia as of the end of Sep 2016. The company’s U.S. box office revenues were about $1.9 billion in 2015. On the other hand, Carmike had 271 theaters with a combined 2,917 screens in 41 states as of the end of Sep 2016 while its U.S. box office revenues were around $490 million in 2015.
However, the regulatory approval is subject to some stringent conditions. The U.S. Department of Justice has stated that AMC Entertainment needs to sell 15 theaters in local markets across nine states where it competes with Carmike. Further, the company has to divest most of its holdings in National CineMedia, a cinema advertising company, and transfer 24 theaters to a rival theater advertising company, Screenvision LLC.
The movie theater operators are currently going through a rough patch. The industry has been bearing the brunt of a Bloomberg report for the last four weeks. The report stated that the Hollywood studios (film makers) are contemplating the implementation of a new business scheme. The strategy involves making newly released movies available for home viewing at a premium within as little as two weeks of its screen debut. The news has sent shockwaves across the movie theater (exhibitor) industry straight away for it will destroy their exclusive right of offering any newly released movie in theater alone in the first 90 days.
Several film studios are negotiating about this path-breaking business model in which film makers will be able to offer movies to online video streaming services for a premium of around $25 - $50 extra as rent. Notably, stagnant home video sales have compelled film makers to think about a new strategy to offer more avenues to consumers.
Consequently, the concern over losing exclusive rights offering new movies has taken a toll on stock prices of the major U.S. movie theaters. Share prices of companies, namely, Carmike, AMC Entertainment, IMAX Corp. (IMAX - Free Report) , Regal Entertainment Group and The Marcus Corp. (MCS - Free Report) , have plunged following the report.
Price Performance of AMC Entertainment
Year to date, the Zacks categorised Leisure and Recreation Services industry (of which movie theater industry is part), has registered a negative growth of 7.14%. In contrast, AMC Entertainment posted an impressive growth of 39.38% in the same time period. However, if the 90 days exclusivity right of new movie releases receives a setback, then the movie theater industry will suffer as a whole and AMC Entertainment is no exception. We believe this is the primary reason behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>