Hoyts is on block

Aussie exhib puts 900-screen U.S. circuit on the market

By MARTIN PEERS

NEW YORK -- Australia-based exhib Hoyts Cinema has put its 900-screen U.S. circuit, the ninth biggest in the country, on the market, in the latest sign of the financial pressures bearing down on the exhibition industry, Wall Street sources said Thursday.

Partly owned by San Francisco leveraged buyout firm Hellman & Friedman, Hoyts has retained investment bank BT Wolfensohn to find a buyer for the U.S. circuit, sources said. Bankers estimate the circuit is likely to fetch $275 million-$330 million.

Hoyts CEO Peter Ivany, who has an office in Boston, did not return calls seeking comment. Neither Hellman nor BT Wolfensohn returned calls.

Hoyts engaged the services of BT Wolfensohn just weeks after Warburg Pincus hired Bear Stearns to sell the much smaller Mann Theater circuit, and at a time of financial turmoil for two other LBO-owned circuits, Hollywood Theaters and Silver Cinemas.

Rescreening pressures

All are being affected by financial pressures flowing from the rescreening of the industry, under which megaplexes with stadium seating are replacing older multiplexes and smaller theaters. The rate of new screen building is outstripping the rate of growth in box office revenues.

Hoyts has suffered from rescreening as much as any other circuit. A recent report by Merrill Lynch noted that after building six megaplexes in its U.S. circuit, Hoyts was forced to close 12 theaters that had become unprofitable as customers switched to the newer plexes.

"Hoyts expects perhaps one or two cinemas a year will be closed in this manner," Merrill said in its report.

The exhib, which operates 213 screens in Australia with much higher profit margins, has been looking to get out of the U.S. for several months, Wall Streeters said, but has been unable to get the price it wants. It has held talks with rival exhibs without an investment bank representative in recent months, but its hiring of BT Wolfensohn suggests the exhib is now serious about getting a deal done.

Better than Mann

Hoyts' American operations are focused in New York state and New England. Rival exhib execs say the quality of the circuit is relatively good, ensuring that the sale will attract wider interest than that of Mann Theaters, whose facilities are considered to be run-down.

In its report, Merrill Lynch estimated that Hoyts' U.S. circuit generated earnings before interest, taxes, depreciation and amortization of $42 million, slightly lower than the cash flow from its Australian circuit.

Bankers said the circuit would likely sell on a cash flow multiple of between 6.5 and 8, well down from the multiples at which exhibs were sold a year ago. But asking prices for exhibs have come down in the past year, as financial performance in the industry has mostly worsened.

Merrill said Hoyts could put the money from the sale of the U.S. operations into "other potentially more lucrative markets such as South America and Europe where the margins are higher and competition less."