Deal with Chinese firm could be blockbuster for AMC

The “A” in its title might become a matter of history for AMC Entertainment. American Multi-Cinema, better known as AMC and based in Kansas City since its 1920 founding, may instead soon be owned by a Chinese company.

AMC’s major real estate partner said Tuesday, in response to reports that the company was in talks with Wanda Group Corp., that a sale could position the movie theater chain for more aggressive growth, particularly in the world’s largest country.

Wanda is a rapidly expanding Chinese conglomerate that owns a theater chain, real estate, department stores and hotels.

The deal, according to industry sources who spoke with The New York Times and the Los Angeles Times, has become more likely since AMC last month pulled a planned public stock offering that would have raised up to $450 million to pay down debt. A sale to Wanda could involve all or part of AMC.

David Brain, president and chief executive of Entertainment Properties Trust, which has developed theaters throughout North America for AMC since 1997, said shifting control from AMC’s Wall Street ownership group to Wanda could chart a new course for the 92-year-old company after a period of uncertainty.

“With new strategic ownership you’d find a reinvigorated AMC, and that would be a positive,” Brain said. “The ownership of AMC has clearly been looking for an exit for a while. That’s not a negative thing. They turn capital, and it has horizons of five years.”

AMC was bought in 2004 for about $1.7 billion by an investor group that includes the Apollo Investment Fund, J.P. Morgan Partners, Bain Capital Investors, the Carlyle Group and Spectrum Equity Investors. Apollo and J.P. Morgan each own about 39 percent of the company.

Three times since December 2006, AMC has indicated it intended to go public but each time withdrew from the process.

“The IPO market has been less than friendly since the (financial system) dislocations of 2009,” Brain said. “The market has been risk adverse.”

AMC was the pioneer in multi-screen movie theaters. It’s now the second-largest U.S. theater chain, with 5,048 screens in 347 theaters.

Wanda Cinema Lines Co., a relative upstart in the box office business, has 730 screens at 86 multiplex locations in China, making it the largest theater chain in that country.

If the deal goes through, Wanda would get a larger international footprint and AMC would get access to the burgeoning Chinese box office.

An AMC spokesman said Tuesday the company was unable to comment. A Wanda spokesman was not reached.

Analysts said a deal with Wanda might put a current value of $1.5 billion on the company, given that U.S. theater chains are expected to sell for up to eight times their annual cash flow. AMC reported a cash flow of about $181 million for the 12 months ended Sept. 29.

Brain couldn’t confirm the reports about a potential purchase but noted the “for-sale sign has been up.”

“Going from a financial owner to a strategic owner, someone in the film industry, is a positive thing,” he said. “With a financial group, the longer into the investment they are, the less aggressive they are. They’re thinking about a strategy to exit on.”

Entertainment Properties also is familiar with the Chinese movie theater market. Brain said his firm had developed theaters for the Shanghai Film Group and has had discussions with Wanda.

“We’ve talked with Wanda about developing theaters, and I’ve met them in their offices,” he said. “I know them and I’m very respectful of them.”

In a filing with the Securities and Exchange Commission, AMC reported a loss of $82.7 million on revenue of $1.93 billion for the 39 weeks ended Dec. 29, 2011.

The company said the losses were due to higher interest expenses, investment losses in a 3D technology company, and costs related to its 2011 acquisition of the 928-screen Kerasotes Showplace Theatres chain, based in Chicago.

AMC has been very active in the Kansas City market over the past few years, including an announcement last fall that it was moving its headquarters and 450 employees from downtown Kansas City to the Park Place development in Leawood.

The firm also forged a $60 million joint venture with the Cordish Co. in 2005 that led to the redevelopment of the historic Mainstreet and Midland theaters downtown.

Cordish representatives declined to comment about what the potential sale of AMC might mean to the future of the historic downtown theaters.

As for the new headquarters, a move fueled by a reported $47 million incentive package from Kansas, both the landlord and the state believe their interests will be protected. A groundbreaking ceremony for the new $30 million AMC headquarters was held last month.

“I know we went through all the typical safeguards a landlord goes through on a single-user building,” said Melanie Mann, co-developer of Park Place. “We have a lease that provides for all the typical protections.”

Chet Compton, a spokesman for Kansas Gov. Sam Brownback, declined to comment about the possible sale of AMC, but added the Department of Commerce typically included language in incentive agreements that governed the transfer or sale of a company.

“These could range from the state having to consent to the transfer or assumption of an incentive package to clawbacks if a company were to move out of the state during the specified term,” Compton said.

According to published reports in China, the Wanda Cinema Line Corp., part of the Wanda Group, has applied for an initial public offering. A filing was listed on the website of the China Securities Regulatory Commission in February.

A deal with AMC would be Wanda’s first American theater chain acquisition, but it wouldn’t be its first North American alliance. IMAX Corp., based in Canada, last year signed an agreement with Wanda Cinema to open at least 75 IMAX screens in China by 2014.

“As disposable income has increased in China, the demand for entertainment — particularly a movie experience — has dramatically increased,” IMAX’s CEO Richard Gelfond told The New York Times last month. “To meet that demand, the creation of a more robust exhibition infrastructure is crucial.”

No U.S. theater chain has expanded yet into China, but several other deals have been made with members of the U.S. film industry. The Walt Disney Co. has entered a partnership with China’s Ministry of Culture and a Chinese Internet company to develop the country’s animation industry.

DreamWorks Animation has a joint venture with Shanghai Media Group to produce “family” entertainment. And RealD of Beverly Hills has tied in with a Beijing company to put 3D technology in Chinese theaters.

The Chinese appetite for more movie screens appears strong. When “Avatar” opened in China, the opening day box office set a Chinese record of $4.8 million.

According to Thomson Reuters, the Securities and Exchange Commission has asked News Corp’s 20th Century Fox, Disney and DreamWorks Animation for information about how they’ve done business in China.

The state-owned China Film Group had been limiting foreign films to 20 a year to be shown in Chinese theaters, but it eased some control in February, the news agency reported, “after China’s leader-in-waiting Xi Jinping, who is known to admire some American movies, spent a week in Washington.”