NCM and AMC reach agreement regarding Carmike merger
National CineMedia, Inc. (NCM) and American Multi-Cinema, Inc. (AMC) have reached an agreement that enables AMC to comply with the Department of Justice’s final order on its acquisition of Carmike Cinemas, Inc. while reaffirming the companies’ commitment to their continued partnership.
The key terms of the agreement, which is mutually beneficial to both companies and preserves the integrity of AMC’s Exhibitor Services Agreement with NCM which continues until 2037, are as follows:
Common Unit Adjustment for Acquired Carmike Theatres
• AMC will receive over 18.4 million units in NCM LLC as a common unit adjustment for its Carmike acquisition. Because the Carmike theatres were subject to a pre-existing advertising agreement and will not receive advertising services from NCM, AMC will be obligated to make quarterly payments to NCM reflecting the estimated value of the advertising services at the Carmike theatres as if NCM had provided such services. The quarterly payments (integration payments) will continue until the earlier of (i) the date the theatres are transferred to the NCM network or (ii) expiration of the ESA with NCM. These quarterly payments are expected to offset the cash impact from the decrease in NCM ownership as a result of the issuance of the units issued for the Carmike theatres.
Transfer of Pre-Show Advertising Provider
• NCM consents to the transfer of advertising rights for 17 theatres by AMC to Screenvision, LLC as required by the DOJ’s final order for a period of 10 years, after which they will revert to NCM. These transfer theatres represent approximately one perccent of NCM’s total network theatres;
• To compensate for NCM’s loss of these transfer theatres from its advertising network, AMC will return approximately 2.9 million common units as the ordinary common unit adjustment; plus, an additional approximately 1.8 million units valued at approximately $25 million as compensation for NCM’s lost operating income for these theatres during the 10-year term of the DOJ’s final order. As a result of these transactions, NCM LLC’s ownership allocation will change, with AMC owning 24.9%, Cinemark owning 17.5%, Regal Entertainment Group owning 17.9%, and NCM owning 39.7%.
Divestiture of Theatres
• AMC will also sell 17 additional theatres as per the DOJ’s final order, many of which were previously Carmike theatres. If theatres which were not previously Carmike theatres are sold, then AMC will return an appropriate number of common units to compensate NCM for the loss of those theatres from the NCM advertising network.
• These theatres may be purchased by any theatre exhibitor, including those that are currently part of the NCM advertising network. Thus, the impact on NCM of these sales is yet to be determined. However, at most, they represent approximately one percent of NCM’s total theatre network.
Future AMC Growth
• As per the ESA, NCM will continue to benefit from the future growth of the now larger AMC entity under the terms of this long-term agreement, as all new theatres that are built or acquired will automatically become part of NCM’s network.
Cooperation on NCM Equity Divestiture and Retention of NCM Equity
• NCM will cooperate with AMC on its required divestiture efforts to ensure an orderly sale and to help maintain the value of NCM stock, including assisting with pre-marketing tasks as well as participation in other efforts to market the stock.
• During the 10-year term of the DOJ final order, AMC will retain at least 4.5% (subject to limited exceptions), but not more than 4.99%, of NCM’s outstanding common stock and NCM LLC’s common units, taken together, on a fully converted basis.
• AMC will reimburse NCM for its incurred and ongoing costs and expenses related to the agreement between AMC and NCM up to $1 million.
“AMC will continue to be a great partner to NCM, and I am pleased that we both remained committed to the preservation of the integrity of the ESA throughout this process,” said Andy England, CEO of National CineMedia. “This agreement is a win for both of our companies and our shareholders, and is not expected to have a material impact on our financial results in 2017. In fact, we have already signed several new affiliate partners that more than compensate for any AMC attendance losses as a result of the settlement with the DOJ and look forward to welcoming them to the #1 Millennial weekend network in America.”