AMC chief executive says buyout of Carmike now faces ‘considerable risk’

The purchase of Columbus-based Carmike Cinemas by AMC Entertainment Holdings appears to be in jeopardy after Thursday’s special shareholder meeting in Atlanta was called off by the request of AMC’s president and CEO.

Leawood, Kan.-based AMC and Carmike, headquartered in downtown Columbus, unveiled the deal valued at $1.1 billion in early March, pledging to pay shareholders $30 for each share of common stock they own. It would make AMC the largest movie-theater in the world if the acquisition is completed.

Carmike said Thursday’s meeting was quickly convened and adjourned without any vote being taken on the proposed merger. Another meeting is scheduled July 15 in Atlanta, the company said, although the record date for those holding stock in the theater chain being allowed to vote on the matter remains May 18.

The Columbus firm had no further comments on the issue, while AMC Entertainment President and CEO Adam Aron had plenty on his mind in a lengthy statement issued by his firm, saying the transaction “is now at considerable risk” and that there remains the possibility that his company could walk away from the deal.

Aron said his company is still “committed” to the proposed acquisition of Carmike Cinemas. The “rationale” for purchasing the motion-picture exhibitor, he said, “continues to be valid, namely to create a larger system of theaters nationwide, to introduce AMC’s consumer-friendly movie-going guest amenities across a broader network of theaters, as well as to achieve cost efficiencies and synergies.”

The CEO said “loose talk by some in the market” not favoring the merger price — he did not use the word shareholders — has been “realistically overstated.” Aron said the detractors have “erroneously neglected” consideration that the $30-per-share purchase price takes into account that some theaters in overlapping markets will have to be sold to rivals. He said tax implications related to another deal with National CineMedia, which requires annual payments to that company, have been ignored, while the costs to complete the transaction and merge the AMC and Carmike will be “significant.”

Two investment firm investors in Carmike Cinemas — New York-based Mittleman Brothers and Chicago-based Driehaus Capital Management — have been particularly outspoken from the beginning, expressing displeasure about the price being offered to shareholders.

Mittleman was the first to criticize the buyout in a U.S. Securities and Exchange Commission filing, saying it began compiling Carmike stock in 2007 and owned more than 1.7 million shares as of March 4. Managing partner Chris Mittleman praised Carmike Cinemas President and Chief Executive Officer David Passman for turning around the one-time “chronically underperforming and run-down theater chain.”

However, he said in the SEC filing, that the transformation of the company makes it much more valuable than what was offered by AMC and agreed to by Carmike’s board of directors, which has a fiduciary obligation to do what’s best for shareholders and the company as a whole. Mittleman, calling the $30-per-share “unacceptably low,” said a more reasonable price, based on the performance of both Carmike and its stock, is $40 per share.

“We intend to vote against, and to encourage other shareholders to vote against, the merger agreement,” Mittleman said bluntly.

Driehaus Capital Management, which said it owns about 1.8 million Carmike shares, entered the fray with a much simpler and shorter statement, saying the pairing of the two theater firms gives AMC substantially more benefit than it is offering Carmike shareholders.

“Despite the logic of the transaction, the value it creates does not appear to be shared equitably,” Driehaus managers K.C. Nelson and Matthew Schoenfeld said in a statement. “Namely, we believe that AMC’s $30 per share offer meaningfully undervalues Carmike Cinemas, which we estimate to be worth between $43.50 and $47.25 per share in this cash-out merger.”

Carmike later responded via a statement of their own that its board of directors unanimously approved the merger after determining it was in the best interests of the company and its shareholders.

“The board made this determination after thoughtful consideration of the options available to the company, including the level of interest from other third parties and the value potential of Carmike’s standalone plan,” the company said. “Carmike did not receive any offers that provided greater value than AMC’s $30 per share offer.”

AMC’s Aron on Thursday said those against the current deal because of the purchase price also have not considered the “considerable weakening” of the movie theater box office — or ticket sales — since the acquisition was announced nearly four months ago.

“With respect to M&A (merger and acquisition) activity, AMC is a disciplined buyer,” Aron said. “We note that the financial metrics surrounding the Carmike acquisition get marginal very quickly above the $30 deal price. Accordingly, we are fully prepared to see the Carmike transaction pass by the wayside.”

Thus, the CEO said, it was appropriate to delay any vote on the purchase to give all sides time to consider if the $1.1 billion deal “will be preserved or instead abandoned.”

The merger between the two would make AMC Theatres the largest movie-theater chain in the world, the companies have said, with AMC ultimately operating more than 600 movie theaters and more than 8,000 screens in 45 states and Washington. The No. 1 motion-picture exhibitor now is Knoxville, Tenn.-based Regal Cinemas, with nearly 600 theaters and roughly 7,300 screens. AMC Entertainment Holdings is a majority-owned subsidiary of China-based conglomerate Dalian Wanda Group, which also operates cinemas in China and is considered that nation’s largest private property developer.

Carmike has been operating in Columbus since 1982, when businessman Carl Patrick purchased the movie-theater chain Martin Theatres from Fuqua Industries and renamed it using the first names of his two sons, Carl and Mike.

The company and its corporate headquarters staff, about 150 individuals, has called 1301 1st Ave. home since the corporate office building was constructed in the mid-1980s. The nearly 86,000-square-foot complex — sleek and shiny with plenty of windows — is the hub of the motion-picture exhibitor that operates 273 theaters (2,938 screens) in 41 states. It has roughly 8,000 employees altogether. Passman has said the downtown office building would be closed after the acquisition is complete and likely sold by AMC.

Shares of Carmike Cinemas closed 37 cents lower on Thursday at $30.12 apiece on the NASDAQ exchange, with the stock’s 52-week trading range between $18.52 to $31.26 per share.

As for AMC, its shares closed 19 cents higher at $27.61 Thursday on the New York Stock Exchange, with its stock’s 52-week range between $19.28 to $32.99 per share.

This story was originally published June 30, 2016 at 1:12 PM with the headline "AMC chief executive says buyout of Carmike now faces ‘considerable risk’."