Shareholders criticize AMC’s $1.1 billion agreement to buy Carmike Cinemas

It’s been a mere four weeks since Carmike Cinemas made the seemingly sudden announcement that it was being bought by AMC Entertainment Holdings in a deal valued at $1.1 billion.

Columbus-based Carmike and Kansas City-based AMC said March 3 that they hope to complete the purchase before the end of this year, the kicker being approval by federal regulators and owners of Carmike’s common stock shares. It’s that last hurdle that is already generating an irritating rub in the process.

The deal calls for AMC to buy all of the outstanding Carmike shares for $30 apiece in cash, which was a premium of nearly $5 each above the closing price of the Columbus theater chain’s stock on March 3. Shares ended that day at $25.11.

Since the companies went public with their plans, two of Carmike’s shareholders have come forward to publicly proclaim that they don’t think the agreement between the two motion picture exhibitors is good for those owning the outstanding shares. Carmike hasn’t yet released a date for shareholders to vote on the deal, although that could likely come when the firm holds its annual meeting of shareholders. That event took place last year in late May.

The shareholders voicing displeasure with the AMC-Carmike agreement as it stands are two investment firms, New York-based Mittleman Brothers and Chicago-based Driehaus Capital Management.

Mittleman was the first to criticize the buyout in a U.S. Securities and Exchange Commission filing, saying it began compiling Carmike shares 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 onetime “chronically underperforming and run-down theater chain” in dramatic fashion.

However, he said in the SEC filing, that 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.

Then last week, 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,” the statement by Driehaus managers K.C Nelson and Matthew Schoenfeld said. “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.”

On top of those stock owners openly objecting to the purchase, there has been the customary flurry of law firms across the country issuing exploratory press releases seeking out any shareholders who may not agree with the agreement made between AMC and Carmike. Such legal probing by attorneys typically occurs when companies and their boards of directors make critical decisions that impact the money shareholders put in their pockets.

For companies such as Carmike and its suitor, AMC, the landscape can become much more treacherous with lawyers attempting to root out potential disenfranchised plaintiffs. While AMC hasn’t commented thus far, Carmike has issued its own statement in support of the deal that would make AMC Entertainment Holdings the largest movie-theater operator in the world, ahead of Regal Entertainment Group.

“The Carmike board of directors unanimously determined that AMC’s offer is in the best interest of Carmike’s shareholders,” Carmike said in its statement. “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. Carmike did not receive any offers that provided greater value than AMC’s $30 per share offer. We look forward to talking more with Carmike shareholders about the board’s determination.”

This story was originally published March 31, 2016 at 4:38 PM with the headline "Shareholders criticize AMC’s $1.1 billion agreement to buy Carmike Cinemas."