Theatrical exhibition company AMC Entertainment Holdings, Inc.AMC recently reached an agreement to buy theater chain Carmike Cinemas Inc. CKEC in a cash-and-debt deal valued at about $1.1 billion.

Inside the Headlines

AMC Entertainment will pay $30 per share in cash for all outstanding shares of Carmike, which represents a premium of roughly 19.5% to Carmike's closing price as on Mar 3.

Notably, the transaction includes Carmike's net debt and will be financed through term loans, bonds and existing liquidity.

The deal is expected to close by the end of 2016 and is subject to regulatory and Carmike's shareholders approval.

Synergies

Presently, AMC Entertainment and Carmike are ranked as the second and fourth largest theater circuits in North America, with 5,426 and 2,954 screens, respectively. Regal Entertainment Group RGC currently occupies the top spot while Cinemark Holdings, Inc. CNK is at the third position.

Post the completion of the deal, AMC Entertainment is likely to take over Regal Entertainment Group to become the largest movie theater operator with 8,380 screens in over 600 theaters across 45 states in the country.

AMC Entertainment expects the transaction to help it achieve annual cost synergies of roughly $35 million.

Moreover, the deal with Carmike, a dominant player in rural areas, will help AMC Entertainment to expand its reach into smaller towns and suburban areas as its influence is currently restricted to urban locations.

Increased Chinese Control

Notably, the latest deal intensifies the control China has over the U.S. entertainment industry as Chinese tycoons are continuously seeking partnerships with Hollywood studios, gaming companies and digital-effects studios.

Interestingly, China is home to the world's second-largest box office and is expected to outshine the U.S. in a few years. The tremendous potential of the lucrative Chinese movie market is highlighted by the country's box-office revenues that surged approximately 49% year over year to $6.78 billion in 2015.

Notably, Chinese property and investment firm Dalian Wanda Group owner Wang Jianlin has been aggressively investing in order to become a power player in the global entertainment industry.

Dalian Wanda Group had acquired AMC Entertainment for $2.6 billion in 2012 and taken it public in late 2013. Meanwhile, in Jan 2016, the group has agreed to acquire a majority stake in "Jurassic World" producer Legendary Entertainment for $3.5 billion.

Consolidation Continues

With this latest deal, the growing consolidation trend in the U.S. movie theater industry continues.

Carmike recently bought Robert Redford's Sundance Cinemas for $36 million in a deal encompassing five theaters. Meanwhile, last year, AMC Entertainment took over 33-theater Starplex Cinemas in a $172 million worth agreement.

Though the industry had a record year at the box office in 2015, the concentration of the theater business is prevalent as exhibitors face decline in attendance owing to increased competition from other entertainment options, like streaming Internet video.

Moreover, fewer movie released by big Hollywood companies, lack of buildup of many new locations and minimal growth opportunities have further added to the woes.

Our Take

AMC Entertainment's acquisition of Carmike brings together two huge companies with strengths to drive growth and create substantial value for shareholders.

Meanwhile, in recent years, AMC Entertainment has been investing a great deal in renovating and refurbishing its multiplexes through enhancements like reclining seats, improved food and beverage, dine-in theaters and new sound and digital equipment to draw viewers.

Notably, AMC Entertainment plans to implement these innovations to some Carmike locations as well which should fuel top-line growth. Also, the acquisition of the suburban and rural-focused Carmike will allow the company to geographically diversify its operations and drive expansion.

AMC Entertainment currently has a Zacks Rank #3 (Hold).

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REGAL ENTMNT GP (RGC): Free Stock Analysis Report

CARMIKE CINEMA (CKEC): Free Stock Analysis Report

CINEMARK HLDGS (CNK): Free Stock Analysis Report

AMC ENTERTAINMT (AMC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.