Angry Shareholders, Cautious Justice Department Threaten AMC’s Deal for Carmike

The top U.S. theater chain, controlled by China’s Dalian Wanda Group, is currently the focus of an antitrust probe

Prospects for the finalization of AMC Theatres’ $1.1 billion acquisition of Carmike Theatres grew cloudier Tuesday, after shareholders in the targeted chain said they would oppose the deal.

Carmike shares edged up and AMC’s were down after Mittleman Bros., the leading Carmike shareholder with 7.1 percent of its stock, said it would fight the deal.

At the same time, analysts’ increasing focus on the intense scrutiny the deal will face from the Justice Department — which is currently investigating AMC over alleged antitrust violations — is certain to create more downward pressure on the stock.

The ramifications of the deal, or its unraveling, are global.

AMC Theaters is owned by the AMC Entertainment Group, a majority owned subsidiary of China’s Dalian Wanda Group. If successful, the deal would give Wanda, which already runs China’s largest exhibitor, control of the top theater chains in the world’s No. 1 and No. 2 box office markets.

The Beijing-based conglomerate run by its chairman Wang Jianlin recently acquired a controlling stake in the Hollywood film studio Legendary Entertainment for $3.4 billion, and has declared its intention of becoming a major player in the global entertainment arena.

In a letter to Carmike CEO David Passman and Chairman Roland Smith, Mittleman managing partner Chris Mittleman said Tuesday that he would accept no less than $40 per share in cash or $35 a share in AMC stock to approve the deal, and that he would lobby other shareholders to make a similar stand.

“We expect most will be in substantial agreement with our view” that the $30 per share price called for in the current deal terms is too little, he said in the letter.

AMC Entertainment Inc., parent of the largest theater chain in the United States with 5,426 screens in mostly major markets, has been the subject of a year-long federal antitrust probe, along with the Regal Entertainment Group and Cinemark Holdings Inc. The nation’s three largest chains are alleged to have used their clout to muscle out smaller rivals in several U.S. markets.

Several insiders told TheWrap they believe it is unlikely the government would approve a deal that would create the world’s largest movie theater chain while charges of exerting illegal influence remain on the table.

Investment banking firm B. Riley on Tuesday downgraded Carmike stock from “buy” to “neutral” based on concerns over DOJ objections and the likelihood of better offers emerging.

“With an estimated close that is 7-9 months out and the uncertainty around the DOJ review, we believe the risk/reward on Carmike shares has now become negative,” said B. Riley analyst Eric Wold.

It is unlikely that the DOJ would reject the entire combination, Wold said, since exhibitor merger and acquisition activity is typically judged on a market-by-market basis. But a potential shift in the DOJ mindset or required divestitures could have an impact on the deal’s closure and scope, or extend it.

AMC stock closed down 29 cents at $28.39 Tuesday. Carmike shares, which have gained 50 percent in value over the past two weeks, were up 14 cents to $29.92.

 

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