AMC-Odeon deal is both trailer and closing credits

July 12, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

AMC Entertainment’s purchase of Odeon & UCI Cinemas is both trailer and closing credits. On July 12, New York-listed AMC said it would buy its European peer for 921 million pounds ($1.2 billion) including debt. That brings the curtain down on Odeon’s epic stint in private-equity ownership – and serves as a preview of coming attractions.

The buyer is showing admirable sangfroid, pouncing less than three weeks after Britain voted to leave the European Union. But AMC was dealing with a pretty motivated seller in Terra Firma. Guy Hands’ buyout firm has owned Odeon since 2004, an eternity in private equity terms, and has been open to a sale since at least 2011.

That helped AMC wangle cut-price admission into European movie screening. An enterprise value of just over nine times trailing EBITDA is notably cheaper than Odeon’s main listed rivals, Cineworld and Kinepolis, which trade at roughly 11 and 13 times respectively – before any control premium. To throw in some free popcorn, AMC reckons it can boost EBITDA by half within four years, partly by introducing the plush reclining seats already working wonders in U.S. theatres.

As well as wrapping up Hands’ stint in European cinema, the takeover may offer a sneak preview of future dealmaking moves. First, it is fresh proof of the global ambitions of Wang Jianlin, China’s richest man, who controls AMC through his Dalian Wanda group. He is already busy building international empires in sports and film.

Second, it relieves the pressure on AMC to pay more for domestic rival Carmike Cinemas, after some of the target’s shareholders rebelled against the $1.1 billion bid. AMC says it can still swallow both – but bagging a prize European asset surely makes Carmike less of a must-do deal.

Third, more broadly, Brexit has made European businesses – especially those priced in pounds – look cheap for buyers who think in dollars. That is more special effect than reality, since earnings are in pounds and euros too. And not all industries are as recession-proof as cinema. Even so, sterling has not been this weak in three decades. That means some targets that were simply too big before will now seem attainable. Expect a few sequels.

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