WASHINGTON (CN) – With a few government-ordered divestitures, it’s lights, camera, action for AMC’s proposed $1.2 billion acquisition of industry competitor Carmike Cinemas.
AMC Entertainment Holdings generated nearly $2 billion in sales last year and is poised to become the world’s largest movie chain once the acquisition is complete, triggering concerns from antitrust regulators.
Filing a proposed settlement Tuesday with a federal judge in Washington, the Department of Justice said the merger can go ahead once AMC must commit to conditions laid out in its proposed final judgment.
The terms require AMC to divest from its theaters in 15 markets across nine states where Carmike Cinemas is its direct competitor. AMC must also create space between itself and National CineMedia LLC, the nation’s largest purveyor of pre-movie advertising.
To this end, AMC must relinquish and sell its equity interest from National CineMedia so that it owns no more than 4.99 percent stock. AMC must also give up all governance rights it holds in National CineMedia, including giving up its seat on its board of directors.
Craig Ramsey, AMC’s executive vice president and chief financial officer, has already resigned his spot on National CineMedia’s board, according to a statement late Tuesday.
Another term requires AMC to transfer 24 movie theaters or 384 individual screens to Screenvision, another cinema-advertising network.
To further ensure that it does not obtain competitively sensitive information from National CineMedia, Screenvision or others, the government also wants AMC to divest itself of any theaters it does not successfully transfer with fully implemented firewalls.
That sensitive information includes “current or future business plans, technological tests or initiatives; investments, finances or budgets, pricing, information related to other movie theater exhibitors, terms and conditions of any actual or prospective contracts concerning the exhibition of first run commercial movies or preshow and cinema advertising services” and “proprietary customer information,” according to the settlement documents.
Renata Hesse, acting assistant attorney general and head of the department’s antitrust division, issued a statement on the billion-dollar deal, saying consumers have seen greater stabilization in ticket prices thanks to the head-to-head competition between AMC and Carmike over the years.
“Today’s settlement will ensure that movie theater competition is preserved in 15 local markets where AMC and Carmike currently compete,” Hesse said.
Together, National CineMedia and Screenvsion serve 80 percent of U.S. movie theaters and already compete for exclusive contracts. Without the stipulations laid out in the proposed agreement, the department worried that a post-merger AMC, as major owner of both National CineMedia and Screenvision, would have certainly chilled head-to-head competition in preshow services and theater-advertising markets.
And that in turn would have shuttered Carmike, currently Screenvision’s largest exhibitor.
A previous complaint filed in 2014 once blocked a proposed merger between National CineMedia and Screenvision, and the companies abandoned the plan shortly thereafter.
Neither AMC nor National CineMedia have returned requests for comment, but the latter’s CEO Andy England issued an optimistic statement.
“It’s business as usual here at NCM,” England said. “We continue to operate under our governing documents with AMC and we look forward to benefitting from the future growth of the larger AMC/Carmike entity under our long term exhibitor services agreement as new theaters are built or acquired.”
England also offer standard assurances to stakeholders, promising that itself and AMC “will be working closely … to astutely manage this transition over the coming months in a way that preserves value for both NCM and AMC.”
In “anticipation of an agreement between AMC and the DOJ,” England also said that his organization’s board of directors has established a committee of “independent directors” that will be tasked with evaluating “any proposals made by AMC to ensure that all agreements reached are in the best interest of NCM shareholders.”
As of September this year, AMC operates 388 theaters, with more than 5,000 screens across 33 states and the District of Columbia.
Carmike, which is headquartered in Georgia, reportedly operated 271 theaters with a total of 2,917 screens across 42 states. Far under the near $2 billion in revenue generated by AMC last year, Carmike generated $490 million in 2015.