Update: Carmike Cinemas stock surges after Reuters report of possible sale

Joe Paull
David Passman, Carmike Cinemas President and CEO, fills up a cup of Diet Barg's Root Beer with vanilla flavoring at the Carmike Ritz 13.
Joe Paull David Passman, Carmike Cinemas President and CEO, fills up a cup of Diet Barg's Root Beer with vanilla flavoring at the Carmike Ritz 13.

Shares of Carmike Cinemas stock jumped sharply Friday after a Reuters news service report that the movie-theater chain — headquartered in downtown Columbus — is exploring “strategic alternatives” that include a possible sale of the company.

Citing anonymous sources, or “people familiar with the matter,” the Reuters article said Carmike has hired JPMorgan Chase & Co. to assist with the process. It said the firm has had contact “in recent months” with other theater companies to talk about a “potential deal.”

Carmike’s stock, traded on the Nasdaq exchange, leaped out of the gate Friday, gaining $3.79 per share, or 12.2 percent, to $34.82, with it holding much of that ground through the markets’ close. The stock finished the day up $3.02 per share, or 9.7 percent, at $34.05.

That closing price draws Carmike’s stock near its 52-week high of $36.22 per share. The low for the past 12 months is $24 per share. Trading of the stock, which averages about 250 million shares daily, topped 1.9 million on Friday.

Rob Rinderman, a spokesman for Carmike in New York, said Reuters had contacted him for comment as well.

“All we’re telling people and all I can say at this point is that it’s our policy not to comment on rumors and speculation, and I don’t really have anything to add to that at this point,” he said.

Asked if some announcement or confirmation of negotiations or a deal is imminent, Rinderman would only say, “Stay tuned. That’s all I can tell you. It’s a moving situation.”

The company then issued a news release at noon Friday, saying it had been contacted by Nasdaq about the “unusual market activity in the company’s stock,” which Carmike called a usual practice when a firm’s shares move sharply up or down.

The motion-picture exhibitor — the fourth-largest theater company in the U.S. — last week reported a fourth-quarter loss of $2.2 million, which was down from a profit of $3.9 million in the same October-December period a year ago. Total operating revenue for all of 2014 was nearly $670 million, but with a net loss of $8.9 million. That compared to a profit of $5.8 million in 2013.

The firm has been growing its footprint steadily over the last two years, with a stated goal of reaching 300 complexes and 3,000 screens. It has been doing that by opening new theaters in leased properties and gobbling up smaller movie-theater companies. The firm currently operates 272 theaters (2,894 screens) in 41 states.

Carmike President and Chief Executive Officer David Passman, as the earnings report was released March 2, said the firm will continue its strategy of expanding the chain’s circuit through buyouts of existing theater companies and opening its own complexes in “attractive, complementary markets.” He did not mention any outside interest in the company or the possibility of a sale.

Prime competitors for Carmike are Knoxville, Tenn.-based Regal Entertainment Group with 572 theaters and 7,356 screens; Plano, Texas-based Cinemark Holdings Inc. with 495 theaters and 5,676 screens; and Leawood, Kan.-based AMC Entertainment Holdings Inc. with 394 theaters and 4,959 screens.

Carmike Cinemas dates to 1982 in its current form. That’s the year the late Carl Patrick purchased Martin Theatres from Fuqua Industries and renamed it using the names of his two sons, Carl Jr. and Mike. The latter would eventually become CEO of the company in 1989 and chairman of the board in 2002.

The firm’s board ousted Mike Patrick in January 2009, with the company continuing to struggle financially after exiting Chapter 11 bankruptcy protection seven years before that. The chain had racked up deep debt amid efforts to expand and modernize its theater footprint with digital screens and megaplexes featuring stadium seating.

Passman was Patrick’s successor and explained that the languishing stock price at the time was a prime reason for the board pulling the trigger on the CEO’s departure and paying him a $5 million-plus severance package.

“Our stockholders and our board and our employees, for that matter, are faced with a stock price that’s less than $3 a share,” Passman said at the time. “Some 24 months ago, it was at $26 a share. We want to see it back in those gangbuster days of higher stock prices.”

Since then, Passman himself has spent money on refurbishing the firm’s aging theaters, redesigning the concession stand and ticketing process, and growing the company’s theater and screen total through acquisitions and new complexes built to suit by property developers with long-term leases. Larger screens, digital audio and creative elements such as full-service dining have been part of the strategy, as has an agreement between it and IMAX in 2013 to open that premium format in some movie houses.

There have been a string of new theater openings over the last two years. On Friday, the company announced the grand opening of a 12-theater complex in New Smyrna Beach, Fla., just in time for the debut of the new Disney film, “Cinderella.”

Any merger or acquisition of Carmike Cinemas would have to clear federal regulatory scrutiny, similar to that which occurred in 2011 when AT&T tried to purchase T-Mobile. The U.S. Department of Justice, fearing the merger could adversely impact wireless service consumers, filed a lawsuit blocking the deal, with AT&T eventually pulling the plug on any buyout.

Carmike is believed to have about 7,800 employees companywide, with the bulk of those part-time workers staffing theaters across its 41-state footprint.