Monday, May 21, 2012

Carlyle Group to Liquefy AMC Entertainment on China

WSJ reported:

A Chinese conglomerate agreed to acquire U.S. movie theater chain AMC Entertainment Holdings in a deal that they said was worth around $2.6 billion, in one of the biggest moves yet by a Chinese company to break into the U.S. industry.

AMC is the second-largest theater chain in the U.S. and Canada, behind Regal Entertainment Group. The theater chain, which can trace its history back to 1920, is currently owned by a group that includes Apollo Global Management, Bain Capital, Carlyle Group, CCMP Capital Advisors and Spectrum Equity Investors.

China's Dalian Wanda Group Corp.plans to invest up to an additional $500 million in AMC, which the U.S. chain can use to update its cinemas' technological innovations and reduce debt.

Private equity underwriters (PEU's) frequently repackage affiliates such that it's difficult to assess profitability.  Bloomberg reported:

Apollo and JPMorgan Chase & Co. (JPM)’s buyout unit agreed to buy AMC in 2004 for about $2 billion including debt. The next year, they agreed to merge the business with Loews Cineplex Entertainment Corp., owned by Bain Capital LLC, Carlyle Group LP (CG), and Spectrum Equity Investors, leaving the combined company owned jointly by the five firms.
PEU's often make their original investment in special dividends and management fees prior to resale. SEC filings show:

A cash dividend of $652.8 million was declared on common stock for fiscal 2008.
Carlyle and Bain executed their familiar debt for dividend move, taking on $400 million in new debt to fund PEU payouts.

AMCE paid another $261.1 million in dividends in late 2010/early 2011.  These funds were used to buy back debt at 80 cents on the dollar.   PEU's expected another $25.8 million pursuant to their Management Agreement when they thought they could take AMC Entertainment public.

AMC paid PEU's $5 million per year in management fees.  That's $40 million for eight years of private equity ownership.

That's nearly $1 billion in dividends and expected cash payoffs to AMC's PEU owners.  I'd bet that's less than their initial up front money, as much as they loaded AMC with debt.

The next time you see a movie in an AMC Entertainment theater, a portion of your ticket money could be headed to China, The Carlyle Group's favorite investment location.  .

Update 5-22-12:  Deal Pipeline suggests AMCE's PEU owners will make a mere $100 million on the deal.   They understated the 2007 dividend by $100 million, so PEU profits could be double their estimate.