It’s one thing for the hometown paper to get scooped on a huge story like AMC Entertainment selling out to the Chinese…
Quite another to pull up short on its front page followup. Unfortunately, that’s exactly what happened earlier this week when the Star rolled out its version of the New York Times scoop on AMC being in talks to sell the company "or a significant stake" to China’s Wanda Group.
How serious is Wanda? Apparently very.
"The Chinese group has reportedly been eyeing an acquisition since president Wang Jianlin said in a speech at Tsinghua University in Beijing in 2011 that his company would ‘shock the world’ with an acquisition to be made within the year," the news organization Want China Times reported yesterday.
Now a little much-needed background and perspective.
Having laid off the business reporter that covered AMC four years back, the Star was forced to play news catchup by drafting into service reporters from its real estate and "human resources" beats. The net result begetting largely a rehash of old news with a couple quotes thrown in from a local AMC business associate rather than an independent third party.
"I was curious about that myself," says one local movie insider. "Why were they asking that guy? It just seemed kind of incestuous."
Also missing in the Star coverage were specifics, perspective and questions regarding the how and why of AMC having "gone private" years ao and subsequently being unable to cash back in via public stock offerings in three attempts. The most recent coming last month and leading up to the potential Chinese sale news.
So let’s take a look, starting with AMC’s going private in 2004.
"Private equity firms are notorious for taking public companies private only to sell shares to the public again down the road," explains B. Simmons of Investing Answers. "Private equity groups generally use leveraged buyouts or buyouts financed by large debt levels to fund their acquisitions, but the result is the same: The shares that are currently public will go away."
Later to return, hopefully generating enormous profits.
It may be worth noting that Bain Capital – Mitt Romney‘s old firm that shuttered a more than 100 year-old Kansas City steel mill and laid off more than 700 workers in the early 2000s – is one of AMC’s private equity partners.
In short, the practice of going private, restructuring the company and then taking it public again is often a means of cashing in and/or out on the private equity partners’ investments?
"You’re basically correct," says one close follower of AMC’s business dealings. "They took the company private and they’ve been looking for an exit strategy for the last five years."
When AMC’s owners first tried to cash back out in 2007 via a $500 million stock offering, they were heading into the current recession and the timing couldn’t have been worse. But even then there was more to that story.
"We have a significant amount of debt," AMC’s offering at the time read. "We have had significant financial losses in recent years. Prior to fiscal 2007, we had reported net losses in each of the last nine fiscal years totally approximately $512 million."
So while the Star‘s AMC-friendly business associate largely placed the blame for the company’s triple failure to take the company public again on market conditions, there appears to be far more to the story.
"The problem is all of the money they’ve been trying to rasie goes to the investors and not to invest back into the company," says the AMC watcher. "It’s a legitimate deal, it’s just not particularly appealing to investors."
In a perfect world taking a company public would raise money to position it for growth rather than to merely "retire debt."
A number of other significant details went missing from the local account of AMC’s foray into China.
For example, "The last few years have been extremely difficult for theater operators. Last year, attendance in North America fell to 1.28 billion, a 4 percent decline from 2010 and the lowest total in 16 years," the New York Times story reported. "Ticket revenue for last year totaled $10.2 billion, a 3 percent decrease."
And aside from market conditions "not being right," AMC may have pulled the plug on its IPO to focus on China "to allow the three firms to recoup an investment they made when they bought the company AMC in 2004," the LA Times reports.
The Los Angeles newspaper cited other difficulties facing AMC in another story late last month.
"It’s a tough business,” one of the paper’s sources was quoted, "citing the long-term challenges faced by the exhibition industry, especially from the threat posed by shrinking theatrical windows — the period between when a movie is released in theaters and when it can be viewed in the home."
"The biggest issue (AMC’s) facing is how to navigate the collapsing of theatrical windows," the source told the Times.
So while the movie biz is up sharply this year and headed into what hopes to be a boffo summer, there’s far more to the AMC China story than reported locally. Until now, of course.