The morning after Thursday evening’s sudden announcement that AMC Entertainment Holdings has agreed to purchase Carmike Cinemas, the acquiring chief executive officer repeatedly mentioned "synergies" in a conference call with Wall Street analysts who follow his firm.
Though it’s very early in the process, with the deal valued at $1.1 billion not expected to be completed before the fourth quarter of this year, it looks as if Columbus-based Carmike’s headquarters eventually could be on the chopping block.
"We expect to eliminate considerable redundant overhead costs related to back-office expenses, such as IT, accounting, legal and human resources by operating out of one headquarters based in Leawood, Kan., led by the AMC management team," AMC President and CEO Adam Aron said on the call.
Simple deduction means there will be no headquarters in Columbus, although Aron said Friday that his company is not jettisoning the Carmike Cinemas brand — at least for now.
"The combined operating strategy will continue to develop, but our initial intent is to maintain two separate brands, one focused on theaters located in large urban areas and the other on midsize and non-urban markets," he said of AMC and Carmike, respectively. "Keeping two brands also allows us organizationally to stay focused on retaining Carmike’s low cost operating model."
I need to say this one very carefully. We will be laser-like in our pursuit of cost synergies, whether that be film exhibition expense, concessions, operating, G&A (general and administrative), overhead costs, you name it, We’ll be turning over every rock to get those synergies that are out there for the taking when we put two companies together into one.
Adam Aron, president and CEO of AMC Entertainment Holdings, on cost savings after Carmike is bought by his firm
Carmike has been operating out of 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, now about 100 individuals, has called 1301 1st Ave. home since the mid-1980s. That’s when the city’s tax records show the Carmike Cinemas building was constructed. The nearly 86,000-square-foot office complex — sleek and shiny with plenty of windows — is the hub of the motion-picture exhibitor that operates 276 theaters (2,954 screens) in 41 states. It has roughly 8,000 employees altogether.
Asked Friday what the plans are for the downtown Columbus structure and its employees as the pending merger is reviewed by federal regulators for any antitrust issues, Carmike responded with a short message through public relations firm Joele Frank, Wilkinson Brimmer Katcher. Its representative Hannah Skeppner sent the note via email.
"The announcement yesterday is just the first step," the company said. "Carmike will continue to operate business as usual through the closing of the transaction, which is expected by the end of 2016, and will be developing more specific plans on how to bring the companies together over the next months."
Aron, the AMC chief executive who was hired in December to lead the Kansas-based company, was much more forthcoming and descriptive Friday of what is about to take place as the second-largest (AMC) and fourth-largest (Carmike) movie theater companies in the U.S. transition into the largest theater operator on the planet.
"I need to say this one very carefully," he told the analysts on the conference call. "We will be laser-like in our pursuit of cost synergies, whether that be film exhibition expense, concessions, operating, G&A (general and administrative), overhead costs, you name it, We’ll be turning over every rock to get those synergies that are out there for the taking when we put two companies together into one. We similarly will be focused on retaining Carmike’s lower cost structure at theaters with lower visitation. We intend to be a lean operator."
For consumers of the combined AMC and Carmike brands, it appears that not much will change, certainly in the short term. AMC’s loyalty programs and other promotions likely will filter over to Carmike and its movie-going patrons. Carmike said the acquisition transition should be "largely seamless" for the chain’s customers, with the company’s rewards program and gift cards not impacted at this time.
In its Thursday announcement, AMC said there should be at least $35 million in annual synergies, or cost savings, realized once the two entities are combined. Aron also implied that while Carmike does operate fewer theaters than AMC and in smaller markets, his company is still taking a major acquisition bite with Carmike.
"It has its own corporate headquarters. It has its own corporate jet," he said. "When you start bringing two whole companies together there are significant synergies as you coalesce around one headquarters operation. I think it’s safe to say we’ve done quite a lot of work to quantify the synergies. We wouldn’t put these numbers out there if we didn’t think we could hit them."
The agreement between AMC and Carmike calls for the Kansas firm to pay $30 in cash for every share of stock held by the Columbus company’s shareholders, which is nearly 20 percent above Thursday’s closing price of $25.11. The overall $1.1 billion value of the acquisition equates to about $375,000 per Carmike screen. Aside from U.S. Department of Justice regulators, Carmike shareholders also must approve the purchase.
Aron said that AMC had been working about six weeks to get everything together for the acquisition agreement. To set it all up, he called Carmike President and Chief Executive Officer David Passman during his first week on the job, and that was followed a couple of weeks later by a small executive dinner together.
"I would like to make a special compliment to David Passman, with whom I’ve been working over the past month and a half to make this transaction real," Aron said. "He is quite the class act. We appreciate everything that he has done for us over the past six weeks. In putting this transaction together, we similarly appreciate that the Carmike management team will run its company well for all of 2016 until such time as the transaction closes."
Despite the free-ranging discussion, Aron said some details surrounding the acquisition and its nuts-and-bolts process will not be made public at this time. For instance, he declined Friday to speculate about the Justice Department review of the deal. He said the company went through a regulatory review six months ago when purchasing theaters from a company called Starplex, so AMC knows what to expect with the upcoming Carmike purchase.
The AMC executive also would not go very deep into how much muscle and clout the combined movie-theater operation will have on pricing with Hollywood studios and businesses that supply it with services, technology, food and beverages.
"Once you start moving into discussions about film rents and purchasing synergies, we’re starting to tread on the sensitivities of our partners," Aron said, calling the studios and vendors partners. "Just be highly confident that we will deliver the synergies we told you we would and let us go about achieving them in a classy manner ... Sunshine is not always the best disinfectant. Sometimes sunshine is pouring gasoline onto a fire."
For consumers of the combined AMC and Carmike brands, it appears that not much will change, certainly in the short term. Aron said it is likely that AMC’s loyalty programs and other promotions will filter over to Carmike and its movie-going patrons.
Passman, in a statement posted on Carmike’s website, said the acquisition transition should be "largely seamless" for the chain’s customers, with the company’s rewards program and gift cards not impacted at this time.