AMC Ent. IPO faces high hurdles


NEW YORK -- Movie theater operator AMC Entertainment Inc.'s planned initial public offering next week faces stiff challenges after the IPO of rival Cinemark Holdings Inc. failed to live up to its blockbuster billing.

AMC, the second-largest movie theater chain in the United States and Canada according to the National Association of Theatre Owners, is scheduled to go public on Thursday in one of the largest IPOs of the year, which would value the company at $2.78 billion at the mid-point of its indicated range.

A 2006 increase in ticket sales and a slate of movies expected to pack theaters this year initially boosted prospects for the AMC IPO as well as the offering from Cinemark, the third-largest movie theater operator in the U.S.

But on their first trading day, Cinemark shares closed down 0.5% at $18.91 on the New York Stock Exchange after falling as much as 6% to $17.75. They traded on Friday back at their IPO price of $19.

"(The Cinemark results) caught people off guard," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. "Obviously, people will now look at AMC with caution."

Kansas City, Missouri-based AMC owns, operates or holds interests in 382 theaters with a total of 5,340 screens.

Its IPO for a 27% stake will raise as much as $789 million at the high end of its indicated price range of $18 to $20 per share.

A positive outlook for a series of upcoming releases, including "Shrek the Third," "Spider-Man 3" and "Pirates of the Caribbean: At World's End," has led to expectations for increased box office this year.

"All the appearances are that 2007 looks like it's going to be better than 2006," said Michael Campbell, Regal Entertainment Group chairman and chief executive officer, in an interview prior to the Cinemark debut. "We always believed (the business) is driven by movie cycles ... and we are in the second up year after a trough in 2005."

But potential investors in AMC also may be discouraged by the fact that the company will not receive any proceeds from the offering, even though it carries a heavy debt load, analysts said.

Its existing shareholders, affiliates of private equity firms including J.P. Morgan Partners L.P., now CCMP Capital Advisors, Apollo Management LP, Bain Capital, the Carlyle Group and Spectrum Equity Investors, are using the IPO to sell their shares.

IPOs from private equity backed companies often use net proceeds to pay down debt incurred by the buyout, but the AMC deal structure is not unusual, said Jay Ritter, a professor of finance at the University of Florida.

However, the debt load is something investors should be wary of, Ritter said.

"If a company's operations run into trouble, a high leverage will hurt equity holders," Ritter said.

AMC had $1.9 billion in pro forma debt as of Dec. 28 and pro forma interest expense of $174 million for the 52 weeks ended Dec. 28, according to the documents filed with the U.S. Securities and Exchange Commission.

For the same period, AMC posted a loss from continuing operations of $123 million with revenues of $2.4 billion, according to SEC documents.

Private equity ownership and its accompanying debt service also raised investor concerns about Cinemark.

For 2006, the Plano, Texas-based company, posted a pro forma loss of $3.5 million and made $168 million in interest payments and $207 million in rent expenses.

"Everybody is going to think AMC is a mirror image," said David Menlow, president of "It could be a case of guilt by association."

Another recent deal was more successful. National CineMedia Inc. , an in-theater advertising company that AMC, Cinemark and Regal Entertainment Group jointly own, went public in February in $882 million deal. Its shares gained 22% on its first day to $25.67. They traded on Friday at $26.89.