The sale of the National Amusements circuit, the first major movie theater chain to come on the market in years, will test the depths of goodwill for an exhib biz whose stellar perf during a severe economic slump has given it newfound status.
National Amusements, owned by
Sumner Redstone's holding company and run by his daughter
Shari Redstone, is the nation's sixth-largest chain with well over 1,000 screens in the U.S. and Canada plus theaters in Latin America, Russia and the U.K. NAI is offering to sell its U.S. and U.K. businesses separately but wants to hold onto 17 locations in the Northeast, where it's headquartered.
Booming ticket sales, up 12% so far this year, have been a bright spot for the entertainment biz -- at times it's seemed like the only one. Movies tend to be countercyclical, and that's been heightened by strong films and a digital rollout that's finally gained momentum. A whopping 56% of ticket sales for DreamWorks Animation's recent "Monsters vs. Aliens" came from 3-D -- leading some to predict a new golden age of cinema.
"The fundamentals look extremely strong for the industry," says one Wall Streeter.
Movie theater stocks always tend to run up ahead of summer, then dip. And it makes sense for NA to strike while the iron's hot and product for the rest of the year looks strong.
"Get a few bad weekends with 30% declines," one analyst cautions, and you'll have everyone back knocking the business again.
So, paradoxically, one of the nation's worst recessions may not be a bad time to unload theaters -- if potential buyers are willing to acquire anything at all just now for less than a bargain-basement price.
"This is certainly not a time I'd like to be selling assets," says one Wall Streeter. "Financing is tough. I think Sumner is going to have to be very smart and very lucky to get an attractive price."
Exhibition has a checkered past with investors. Chains bulked up through the 1990s, spending billions to retrofit old theaters and build costly new ones. They cannibalized each other's markets as the number of screens nationwide shot up. Then they went bankrupt one after the other, clearing the way for massive consolidation that created giants like Regal and AMC.
The big publicly traded companies like Regal and Cinemark, and AMC, which is owned by private equity, aren't likely to bite for National Amusements -- certainly not the whole package.
"They're not going to take a tremendous amount of risk, levering up their balance sheets and annoying Wall Street, when they have other things that are going well," says one showbiz analyst.
But heavyweights and smaller regional chains might consider cherry-picking select theaters if they can. Ditto for private equity firms that are already heavily invested in the sector.
People close to NAI say the company would like to sell the theaters as a group but would be open to breaking them up.
"They'll do whatever gets the best price," says one person.
That could include putting the Russia and Latin America properties and even the Northeast U.S. theaters in the mix.
Sumner Redstone says he's the "point man" on the sale of the circuit and is bullish about his prospects.
"The exhibition business is experiencing the biggest boom I've seen in my lifetime, and that creates the perfect environment for the sale of this asset," Redstone says.
The company's books are now in great demand, says Redstone, and serious bidding will start shortly.
Most of the theaters in the circuit are built on their own real estate, unlike others, he notes. Many have converted to digital, and Redstone foresees a significant increase in ticket sales from digital and 3-D. He's visited the set of Paramount's "The Adventures of Tintin," the
Steven Spielberg-
Peter Jackson movie, and is enthusiastic about "this amazing process for animating people, not just characters."
The mogul, of course, hasn't typically been so sanguine. Redstone and daughter Shari have disagreed publicly over the exhib biz in the past, with Sumner saying back then that he sees little growth and Shari, who is passionate about the exhib side, begging to disagree.
What Redstone will do if no attractive offer materializes likely depends upon his relationship with NAI's bank lenders, who pushed him to sell the theaters to raise cash after he breached loan covenants.
Last month, the banks agreed to grant Redstone a respite by putting off the bulk of the payment, about $1.46 billion, until 2010. But a $500 million chunk comes due at the end of this year, and it's not clear if that can be met without proceeds from the sale of the theaters.
"The fact that the banks are involved reeks of desperation," says one analyst. "Maybe the banks want to lower their exposure and don't care what they get... (Redstone) may have said, 'Give me some grace time and I'll sell these as sacrificial pawns.' "
ends
Contact Jill Goldsmith at
jill.goldsmith@variety.com