AMC Entertainment (NYSE:AMC) is one of the world's largest theater companies. They introduced multiplex theaters in the '60s, stadium seating for megaplexes in the '90s, and have been further innovating as early adopters of 3D and IMAX. The firm owns, operates or has interest in 343 theaters and 4,950 screens. In the 2012 calendar year, AMC had approximately 200 million customers visit their theaters. See S-1.
Citigroup (NYSE:C), BofA Merrill Lynch (NYSE:BAC), Barclays (NYSE:BCS), Credit Suisse (NYSE:CS), B. Riley & Co. Barrington Research, FBR, HSBC (NYSE:HSBC), Loyal3, Piper Jaffray, Stifel (NYSE:SF), Wedbush Securities.
Price Range: $18-$20
Shares Offered: 18,421,053
Shares Outstanding (post-IPO): 95,082,706
% of Float: 19.37%
Use of Proceeds:
At the midpoint of the proposed range, the firm expects to raise approximately $322.6 million after deducting fees. The proceeds are expected to be used primarily to retire outstanding debt, including possibly the 8.75% Senior Fixed Rate Notes which mature on June 1, 2019. Any net proceeds that are not used to reduce outstanding indebtedness will be used for general corporate purposes, including capital expenditures.
After several unsuccessful attempts to float an IPO, AMC was purchased by The Wanda Group for $2.6 billion 15 months ago. Wang Jianlin, the Chairman of The Wanda Group is currently the second wealthiest man in China. After the buyout Gerardo Lopez, CEO of AMC stated in an interview that The Wanda Group would invest an additional $500 million in the firm to reduce debt and improve AMC threaters.
At the $19 price point, AMC will command a market value of $1.806 billion.
(9 months ending Sept. 30 2013)
Net Income: $84,783,000
Total Assets: $4,326,866,000
Total Liabilities: $3,476,158
Stockholders Equity: $848,897,000
Though the firm has struggled to improve margins over the last several years, it is now profitable after years of losses. If the most recent nine months of performance are annualized and the offering prices at $19, AMC will sport at a P/E multiple of 16. This compares favorably with Regal Entertainment (NYSE:RGC) and Cinemark Holdings (NYSE:CNK) which trade at multiples of 17.5 and 23.5 respectively.
In the past 12 months the company has invested over $375 million (Classified as Capital Expenditures and Growth Capital Expenditures in the S-1 filing) to significantly improve their existing theaters, including a 5-year deployment plan to increase attendance, customer spend and profitability. They have also stated "planned" Capital Expenditures of approximately $245 million in each of the next three calendar years.
The enhancement strategy is focused in the following areas:
"Comfort & Convenience" (Motorized plush recliners, reserved seating)
"Enhanced Food & Beverage" (Full Service Bars, in-theater dining)
"Premium Sight & Sound" (IMAX, ETX, & RealD 3D)
The Wanda Group
The Wanda Group will continue to own a full 79.7% of total outstanding shares after the offering. They have a clear and direct interest in growing the firm's market share. Unlike many of the other private equity backed IPOs that have hit the U.S. Market this year, The Wanda Group is maintaining a very sizable stake in the firm, not just looking to book a short-term profit.
A strong argument could be made that Wanda has already begun to execute a successful turnaround effort. Since the acquisition (March 21, 2012), the firm's financial picture has improved dramatically after reporting net losses for almost a decade.
2013 (9 months ending Sept. 30)
Net Income: $84,783,000
2012 (12 months ending March 29th)
Net Income: -$94,098,000
2011 (12 months ending Sept. 30 2013)
Net Income: -$174,304,000
Stocks in the movie exhibition space have had a strong year along with the broader market. AMC's closest competitors -- Regal Entertainment , Cinemark Holdings , and Carmike Cinemas (NASDAQ:CKEC) -- have seen their share prices increase by 38%, 25% and 52% respectively since Jan. 1. The broader market as measured by the S&P 500 is up 23% over that same period.
AMC has offered all of the "Stubs" members and employees at AMC the opportunity to participate in the offering at issue price. While the planned allotment is small -- 110,527 shares for Stubs members and 230,264 for employees -- we believe there is some additional incentive for the issuer to price the deal to work.
While we don't expect this IPO to break any box office records, at the midpoint of the expected range we believe the offering should perform well on day one. The name recognition, innovation at the company, and strong market position should give some institutions a good reason to save a seat for AMC in their portfolios.