Bottom line: AMC is likely to raise its offer for Carmike Cinemas to the $33-$35 range to placate investors who say the original bid price is too low.
Just days after meeting resistance in a bid to privatize his Hong Kong-listed real estate company, billionaire Wang Jianlin is running into similar difficulties in his plans for a similar buyout of US-listed movie theater operator Carmike Cinemas (Nasdaq: CKEC). Wang first bid for Carmike earlier this year, hoping to combine it with his previously purchased AMC Entertainment (NYSE: AMC), the second largest US movie chain operator. But shareholders quickly said the offer price was too low, and now it appears that Wanda and Wang are reconsidering the bid.
The bigger story is that Chinese buyers are famous for bargain hunting in their global acquisitions, often targeting lackluster assets that are past their prime. Wang’s pursuits in the movie theater business fit that definition, since the sector is quite mature in the west and not very profitable. But Wang is a savvy businessman, and is hoping to someday combine his global theater holdings into a single company, anchored by his fast-growing chain of cinemas based in Wanda’s home China market.
But Wang’s plans of building up a US-based theater giant may be set for delay, since the latest reports indicate Carmike plans to call off a meeting where shareholders were supposed to vote on the plan for the company to be acquired by AMC. (English article) Media reports cite market volatility as one possible reason for the delay, but also point out that some key shareholders have said the offer price of $30 per share is too low.
Shortly after Wanda made its bid, Driehaus Capital Management, which owns 7.3 percent of Carmike’s shares, issued a statement saying the chain should be valued at $43.50 to $47.25 per share. (previous post) Driehaus joined Mittleman Bros LLC, another major Carmike investor with a 7.1 percent stake, in criticizing the offer as significantly undervaluing the company.
Carmike’s shares traded as high as $31.23 just a week ago, indicating investors believed that Wang and AMC might raise their bid. The shares are now just over $30, which is still slightly above the offer price, indicating some are still hoping for a deal. The reports also point out that the shareholder vote cancellation could still be followed by a raised offer and new vote date.
Deal Still Likely
The fact that Carmike’s share price hasn’t collapsed back to pre-offer levels, when it was trading at about $20, indicates there may still be hope for a deal. I would probably concur with that view, since Wang is quite a determined individual and has made entertainment one of his key focuses as he seeks to diversify beyond his core real estate holdings.
Those real estate holdings were in separate but similar headlines earlier this week, when Dutch fund manager APG Groep NV said Wang’s offer to privatize his Hong Kong-listed Wanda Commercial Properties (HKEx: 3699) was also too low. (previous post) APG holds 5 percent of Wanda Commercial’s shares.
In both cases, Wang was actually offering very nice premiums to each company’s previous share price before the buyout bid was announced. But in both cases, the big institutional investors have said the bids were still too low, even though the figures cited by Driehaus are more than double where Carmike’s stock traded before Wang launched his bid.
In both cases, I tend to take a middle view. On the one hand both Wanda Commercial and Carmike were probably undervalued, which is what attracted Wang in the first place. But on the other hand, the big institutional investors are probably also getting a little greedy, on the belief that a rich man like Wang won’t dare to walk away from either of these deals. In the end, I do suspect that Wang will come back with a higher bid for Carmike, though it will be well below what Driehaus has suggested, perhaps in the $33-$35 range.
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