People may be piling into movie theaters to catch up on the latest Oscar winners, but by this time next year, they may find their usual moviegoing experience slightly changed.
On Thursday, AMC Entertainment (AMC) announced plans to acquire Carmike Cinemas (CKEC) for $1.1 billion, including the assumption of Carmike's debt. The deal is expected to close by the end of 2016 and is subject to regulatory approval as well as approval by Carmike's shareholders.
AMC said it plans to maintain two brands: one focused on urban areas and another on midsize, non-urban areas. The combination of the two brands is expected to reduce overhead costs, and the acquisition is expected to be accretive to free cash flow in the first full year. While there are plans to operate two brands, AMC highlighted its success with previous growth initiatives. (No word yet if that means Carmike's theaters will be getting AMC's plush recliner seats, though the seats were featured in the presentation.)
As part of the deal, which will be financed with a mix of term loans and bonds, AMC will acquire all of Carmike's outstanding shares for $30 per share in cash. At the time of Thursday's announcement, this represented a 19.47% premium on Carmike's shares. Investors appear to support the deal, as Carmike's shares have spiked more than 15% on the news to $29.
During a Friday call with analysts, AMC CEO Adam Aron gave more color on how he expects to achieve cost benefits from the deal.
"We will be laserlike in our pursuit of cost synergies, whether that be film exhibition expense, concessions, operating expense, G&A, over at cost, you name it, we will be turning over every rock to get the synergies that are out there for the taking when we put two companies together into one," Aron said.
Operating the two brands also could eliminate some of the volatility in box-office performance, with Carmike experiencing higher highs and lower lows than AMC in the latter part of 2015, as seen in the chart AMC provided below.