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AMC Deal Boosts Chinese Control of U.S. Theaters

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03/03/2016 | 08:56pm EDT

AMC Entertainment Holdings Inc. agreed to buy Carmike Cinemas Inc. in a cash deal that would make a Chinese-owned company the largest movie-theater operator in the U.S.

AMC will pay $30 a share for Carmike for a total payout of $1.1 billion, including the assumption of some Carmike debt, the companies said Thursday. The price is a nearly 20% premium to Carmike's closing share price of $25.11 on Nasdaq.

The deal also makes AMC the world's largest movie-theater operator. Currently Regal Entertainment Group is the largest theater company in the U.S. AMC is the second-biggest in the nation and Carmike is No. 4. The deal is subject to antitrust review by the Justice Department.

AMC was purchased in 2012 by China's Dalian Wanda Group Co. for $2.6 billion. Wanda has made significant inroads in Hollywood since then, most recently purchasing "Jurassic World" financier Legendary Entertainment for $3.5 billion in January.

Chinese companies have been on a global shopping spree in recent months, helping the Chinese government with its agenda to enter the global market and build the Chinese brand overseas.

This week, China's government-controlled brewer China Resources Beer Holdings Co. agreed to acquire SABMiller's 49% interest in the joint venture known as CR Snow in a $1.6 billion deal that would give it full ownership over Snow, the world's No. 1-selling beer by volume.

In February, China's state-owned China National Chemical Corp. offered $43 billion in cash to buy Swiss pesticide and seed company Syngenta AG, marking the most ambitious foreign takeover attempt by a Chinese company to date.

Wanda and other Chinese entertainment companies have eyed Hollywood for the past decade, eventually aiming to build global film corporations large enough to rival the likes of Universal or Sony.

China is home to the world's second-largest box office, which rose 49% to $6.78 billion last year. The box-office growth is fueling a construction boom among Chinese theater companies. The market is expected to surpass the U.S. in a few years, driven in part by China's desire to replicate American success in the entertainment industry.

To learn how to do it, China has become a welcome source of capital for Hollywood studios.

Recent deals include last month's announcement that Chinese videogame company Perfect World Pictures invested $250 million with Comcast Corp.'s Universal Pictures to cover 25% of the production budgets of most movies made by the studio over the next five years. Last year, Lions Gate Entertainment Corp. struck a similar deal with Hunan TV & Broadcast Intermediary Co.

Some U.S.-based studios have opened Chinese counterparts. DreamWorks Animation SKG Inc. is a minority owner of Oriental DreamWorks, which is expected to produce several animated features for the Chinese and global markets over the next several years.

Wanda, which runs its own publicly listed cinema chain in China, has been expanding its cinema empire world-wide. Last year it acquired Australian cinema chain Hoyts Group. Wanda's acquisition of AMC remains the country's most significant foray into exhibition.

Wanda executives encouraged AMC Chief Executive Adam Aron to expand the company through acquisition when he met with them in January, he said in an interview Thursday. Mr. Aron was hired after most recently serving as CEO of Starwood Hotels & Resorts Worldwide Inc. and started about two months ago.

"There is no grass growing under our feet," he said.

AMC's 5,425 screens are concentrated in urban locations, while Carmike's roughly 2,954 screens tend to be in more suburban and rural areas.

Mr. Aron said he planned to introduce some new features in the Carmike locations that have been successful in AMC theaters, such as outfitting auditoriums with recliner seats and introducing dine-in food and alcohol to some sites.

Mr. Aron said he also wants to expand AMC's loyalty program, AMC Stubs, and its own brand of premium large format auditoriums?which compete with IMAX Corp.'s oversize screens, sometimes within the same multiplex?that come equipped with better sound and screens.

AMC said the deal should result in about $35 million in annual savings in 2017 and beyond. The companies will combine some "back-of-house" duties, said Mr. Aron, adding that he expects "more than 95%" of Carmike employees to stay with the company.

Carmike has long been seen as a takeover target in the exhibition industry. It doesn't compete in most markets with AMC, which should ease the antitrust review. The acquisition is expected to close by the end of this year, said Mr. Aron.

AMC and Carmike had discussed an acquisition over the past several years, said Mr. Aron, most recently last spring. This deal started coming together when Mr. Aron, in his first week on the job, called Carmike CEO David Passman.

The exhibition industry had its highest-grossing year on record last year thanks to hits like "Star Wars: The Force Awakens," a performance that was reflected in recent quarterly earnings at both companies.

A full slate of likely blockbusters fill the calendar for this year and next, but Mr. Aron said the acquisition is focused on longer-term goals.

The effects of this deal are "for the next 10, 20 years," he said.

Laurie Burkitt contributed to this article.

Write to Erich Schwartzel at erich.schwartzel@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AIMING INC. 0.00% 819 End-of-day quote.161.66%
AMC ENTERTAINMENT HOLDINGS, INC. -3.50% 4.13 Delayed Quote.-40.88%
BOX, INC. -1.01% 20.63 Delayed Quote.24.20%
COMCAST CORPORATION -0.64% 40.07 Delayed Quote.-10.32%
HUNAN TV & BROADCAST INTERMEDIARY CO., LTD. 0.15% 6.83 End-of-day quote.1.34%
IMAX CORPORATION -2.79% 11.17 Delayed Quote.-48.36%
LETS HOLDINGS GROUP CO., LTD. 3.09% 11.68 End-of-day quote.93.38%
NASDAQ -0.50% 120.47 Delayed Quote.13.05%
ORIENTAL HOLDINGS -0.18% 5.64 End-of-day quote.-13.89%
PERFECT WORLD CO., LTD. 2.12% 56.71 End-of-day quote.28.48%
SONY CORPORATION -1.03% 7502 End-of-day quote.1.36%
STARWOOD HOTELS & RESORTS WORLDWIDE INC -0.26% 77.05 Delayed Quote.0.00%
SWISS RE LTD -0.77% 75.12 Delayed Quote.-30.36%
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