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The deal to sell AMC Entertainment Holdings, once of America’s largest Cinema groups to a Chinese entertainment conglomerate, Dalian Wanda Group, is one of those deals where the US vendor saw the foreign buyer coming.  
 
AMC had filed for an IPO as long ago as 2010 but never found the right time or price to go public. It had previously done the same in 2006 and is still owned, by Private Equity Groups Apollo Global Management, Bain Capital, the Carlyle Group, CCMP Capital Advisors and Spectrum Equity Investors. It also used to have JP Morgan Partners as an owner, but that was not alluded to in the statement, so it must have passed on its shareholding.  
 
AMC is the second largest cinema chain in the US after the Regal Entertainment Group, which itself has spent long periods in Chapter XII bankruptcy before a series of mergers took it to about 1,000 screens ahead of AMC, with revenues of about $200 million a year more (around $2.6 billion). Between them they control over 11,000 US screens, out of around 38,000 in the US (2009 figure).  
 
Despite what both companies say, the state of US cinema is nothing like it is in China right now. In China it is on the way up, in the Us, on the way down. The AMC founder was attributed with the idea of Multiplexes, based on the thought that the same number of staff could support up to ten separate screens, if the programs start at different times. But the US has long gone past the days where it has built new multiplexes at the expense of theatre conversions into single screen cinemas, while in China and other parts of Asia, the cinema and the introduction of multiplexes are a recent phenomenon and still many people have yet to experience a visit to the cinema.  
 
Revenue from these chains, despite their relatively strong negotiating power with Hollywood studios (compared to smaller theatrical groups), is flat and at Faultline we would expect it to slowly turn down.  
 
Even on the S1 registration statement of AMC it concedes that in recent years, net new build activity has slowed, and screen count has rationalized and is expected to decline. What it does not say is that for the past 5 years, seats occupied per screening have gone steadily down. AMC has managed to stay at flat revenue or a small decline, only by increasing seat price – up about 90 cents this year on average to $8.87, not something which it can do forever. This is basically a doomed business – don’t care what you say.  
 
However the Chinese conglomerate may not be as green behind the ears as it looks. It may well be able to leverage great terms from Chinese studios as a US outlet for Chinese content, an outlet which previously did not exist, and as a result, could operate on different metrics, playing Bollywood and Chinese Studios off against Hollywood, and taking more of the Chinese and Bollywood pie, in the US.  
 
Total cinema Box office revenues in the US went from $5 billion in 1989 to $10.6 billion in 2010, the company says in its filings, claiming its attendance and box office revenues grew an average of 8.1% and 12.3%, respectively, figures we find hard to accept, and which will certainly not continue. The press statement says this will create the world’s largest cinema owner and the Chinese company paid a massive $2.6 billion.  
 
Wang Jianlin, Chairman and President of Wanda, said, "This acquisition will help make Wanda a truly global cinema owner, with theatres and technology that enhance the movie-going experience for audiences in the world's two largest movie markets. Wanda has a deep commitment to investing in the entertainment business and is already the largest in this sector in China, with more than $1.6 billion invested in cultural and entertainment activities since 2005. We share with AMC a passion for the growth of the worldwide movie industry. We look forward to partnering with AMC's management team and employees to build on the many strengths of the company."  
 
As part of the transaction, Wanda intends to invest up to an additional $500 million over time to fund AMC's strategic and operating initiatives. Wanda has secured the AMC management team - perhaps it thinks they can help it with its Chinese operation too.  
 
Regardless of whether or not you think this deal can pay back the buyer, it is the first instance we can think of where a Chinese group has bought into entertainment on a large scale in the US. Can you imagine the same happening in cable or satellite TV, or buying out studios. It is as much a tipping point as when Sony bought out Columbia Pictures back in the 90s.  
 
AMC has 18,500 employees and the HQ will remain in the Kansas City metropolitan area and day-to-day operations, including the process for film programming, will remain unchanged.  
 
AMC operates 346 multiplex theatres with 5,034 screens, including 2,336 3-D screens and 128 IMAX screens, making it the world's largest IMAX operator, it says. 

Courtesy Rethink Research