Reuters – The latest deal from China’s richest man is unexpectedly logical. The AMC cinema chain, controlled by Wang Jianlin’s Dalian Wanda group, will buy its U.S. rival Carmike for $1.1 billion. It looks like rational consolidation at a defensible price – aspects mostly lacking from the tycoon’s recent splurge on movie studios, theme parks and soccer clubs. Perhaps financial reality is kicking in.
At $30 a share, AMC is paying a near-20 percent premium to its smaller competitor’s last closing price. Subtract Carmike’s last reported net debt and the deal values its equity at $748 million. That’s a pricey-looking 44 times what analysts expect Carmike, which specialises in theatres in smaller non-urban areas, to earn this year.
But AMC thinks it can carve some $35 million from its target’s annual cost base. After tax, those savings are worth more than $200 million today – well above the $130 million premium that AMC is handing to Carmike shareholders.
The timing looks right too. Box office revenues in the United States jumped 7.4 percent to top $11 billion in 2015, reversing a 5 percent decline in the previous year, according to Box Office Mojo. Adrenaline-packed hits like “Star Wars: The Force Awakens” and “Jurassic World” as well as features like reclining seats and alcohol were enough to tempt American audiences from their couches. A combined AMC-Carmike would be the country’s largest cinema chain.
By comparison, Wanda’s second deal with AMC is a sequel investors can for once wrap their heads around.