TheBritish pound sterling’s historic low against the U.S. dollar makes ’s acquisition of Odeon& UCI Cinemas Group a “bargain,” AMC President and CEO AdamAron said during a July 12 conference call discussing the deal.
As expected, DalianWanda Group Corp. Ltd. unit AMC Entertainment clinched a definitiveagreement to acquire London-based Odeon & UCI Cinemas Group from investmentfirm Terra Firma Capital Partners Ltd. for about £921 million. The deal's priceis composed of £500 million of equity, 75% of which will be in cash and 25% inshares; £407 million of net debt as of March 31, which will be refinanced atthe deal's closing; and £14 million of employee incentive costs.
Odeon’s valuationis considerably lower than initial press , which cited a potentialdeal value of up to $1.3 billion.
AMC,which has just one movie theater in the U.K., will continue to operate Odeon,Europe's largest theater operator, as a standalone subsidiary led by itscurrent London-headquartered management team. The combined company willoperate 627 theaters and more than 7,600 screens in eight countries, making itthe largest movie exhibitor in the world.
Describingthe combination with Odeon as a “once in a generationopportunity,” Aron said post-Brexit currency conversion rates are likely topropel further M&A interest in the U.K. from U.S. media buyers.Sterling fell to its lowestlevel for more than three decades recently, pushing it to as low as $1.2798against the dollar on worries of possible U.K. interest rate cuts.
“Weare aware of the complexities of Brexit but we believe we should strike whilethe iron is still hot,” Aron explained during the call, adding that “we are notgoing to be the only U.S. buyer rushing in to acquire at these exchange rates.”
Atan EBITDA of 9.1x, the Odeon transaction stands below the valuation multiplesof other European publicly traded European exhibitors. Rival chains such asCineworld and Kinepolis are trading at 10.5x and 13.4x respectively, whileprivately held Turkish theater chain, Mars Cinema, was reportedly sold to SouthKorea's CJ-CGV at a 13.4x multiple, Aron noted.
Aronadded that AMC would provide strategic direction and capital deployment to givethe European chain’s “old and tired” cinema fleet “a nice facelift.” Among theinitiatives now being taken to drive revenue and profits include recliningseats and IMAX screens.
TheOdeon announcement comes only months after AMC’s proposed of However, thecompany has since claimed its planned purchase may be at ""after opposition tothe buyout from Carmike’s largest shareholders.
In a separatenews release, AMC stressed that the deal with Odeon & UCI will not impactits ability to complete the Carmike transaction. Nevertheless, Aron did say thelatter deal continues to be at “considerable risk," given Carmikeshareholders' "unrealistic view" regarding the Carmike's value to AMC.
The Odeontransaction is expected to be completed in the fourth quarter, subject toapproval from the European Commission as well as to consultation with theEuropean Works Council.