Premium Essay

Amc Buyout

In: Business and Management

Submitted By Jlu1122
Words 8643
Pages 35
Rev. Oct. 5, 2009

In July 2004, Sean Penmeyer, a principal at J.P. Morgan Partners (JPMP, the private equity arm of JPMorgan Chase & Co.), was in the midst of formulating the final terms of a public-to-private buyout proposal for AMC Entertainment Inc. (AMCE). Always alert for new investment opportunities, JPMP had invested in the theater industry before and had started a process earlier that year to learn more about the current state of the market. The interest was prompted by a gradual recovery in theater attendance since the recession and post–September 11 downturn. Big hits in 2002 and 2003 such as Spiderman, Finding Nemo, Lord of the Rings, and
Matrix Reloaded had brought crowds back to the theaters and increased merger and buyout activity in the sector. Through various industry sources, Penmeyer had learned that AMCE might be looking for potential investors. On April 30, 2004, a senior partner at JPMP telephoned Peter
Brown, chairman, president, and chief executive officer of AMCE, to gauge his interest in further discussions with JPMP.
Earlier in the year, AMCE’s board had explored several opportunities to create value for shareholders. Those included acquisitions, strategic combinations with other theater companies, and a possible recapitalization of the company to simplify its capital structure. Several past investments, including a $250 million equity infusion by Apollo Management, L.P., in 2001, had left AMCE with two classes of convertible stock in addition to its publicly traded common shares. It was the board’s belief that a simplified share structure—one with a single class of common stock—would remove the overhang of the preferred shares and more fully align the interests of all of AMCE’s shareholders. Most important, during that conversation, Brown indicated that the board was not…...

Similar Documents

Premium Essay

Amc Entertainment Case Study

...AMC Entertainment Case Study Lenders Lack The Ability To Negotiate With Borrowers Situation Overview Ø In April 2008, AMC Entertainment Holdings put forward an amendment to holder’s of its L+500 Super Holdco PIK Loan to provide the Company with flexibility in repurchasing the loan at a discount Lenders were given an ultimatum: Sign within five days and receive a 5 bps fee, otherwise, you will receive nothing Included in the terms of the amendment were as follows: Ø Ø Ø Borrower could repurchase up to 100% of the loan, but NOT necessary to repurchase pro rata from lenders; loan would be deemed retired Sponsor could repurchase up to 33% of the loan for its own account; loan would NOT be deemed retired and interest would still accrue on the loan Ø Ø Ø Lenders who requested a holder list from the investment bank were not provided with one Due to nature of ultimatum and lack of transparency amongst holders, lenders were forced to sign, as is, or forfeit their amendment fee How Bank Loan Update Could Have Changed the Outcome Ø Ø Bank Loan Update has individual Company discussion boards for the entire leveraged loan market Requisite Lenders of the L+500 Super Holdco PIK Loan could have come together on Bank Loan Update to discuss the amendment in detail before signing; some of the key points which may have been altered: Ø Ø Requesting a higher amendment fee à 10 bps fee has been more standard for these types of amendments Reducing or eliminating......

Words: 290 - Pages: 2

Premium Essay

A Leverage Buyout

...Running head: A LEVERAGE BUYOUT 1 Graves Dancer Takes Tribune Corporation private in an Ill-Fated Transacti A LEVERAGE BUYOUT 2 Introduction A leverage buyout (LBO) is a kind of acquisition where the buying price is financed via debt and equity. The cash flow or assets of the target company are used to secure the debt and repay it. The returns on equity increase as the debt increase as debt has a lower cost of capital compared to equity. In other word a LBO is a method of acquiring a company with money that is nearly all borrowed. To conduct an LBO, the acquirer ensures that the target’s assets are adequate as collateral for the loan needed to purchase the target. The acquirer must also create and study financial forecasts of the combined entities to make sure that they generate enough cash to cover the principle and interest payments. Once the buyer has determined that the LBO is financially feasible it works on acquiring enough cash for the acquisition by incurring debt. Doing an LBO is expensive and the process can be complex. LBO’s are popular in merger and acquisition as the acquiring organization uses money borrowed to fund the acquisition. The assets of the target organization are used as collateral to get the loan. LBO enables organization to make a big acquisition without using a lot of capital. Purpose of the paper This paper seeks to analyze the acquisition of Tribune Corporation by Grave Dancer. The......

Words: 1623 - Pages: 7

Premium Essay

Leverage Buyout

...| 1. Leveraged Buyout – LBOThe acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. | | In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts have had a notorious history, especially in the 1980s when several prominent buyouts led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that the leverage ratio was nearly 100% and the interest payments were so large that the company's operating cash flows were unable to meet the obligation. One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33 billion for the acquisition. It can be considered ironic that a company's success (in the form of assets on the balance sheet) can be used against it as collateral by a hostile company that acquires it. For this reason, some regard LBOs as an especially ruthless, predatory tactic. | 2. When you decide the capital structure of a firm, what......

Words: 1303 - Pages: 6

Premium Essay

Buyout Offers

...JOURNALOF ELSEVIER Journal of Accounting and Economics 18 (1994) 157-179 Accounting &Economics Earnings management preceding management buyout Susan E. Perrya, Thomas offers b H. Williams** “School of Commerce. University of Virginia, Charlottesville, VA 22903-2493, USA bSchool of Business, University of Wisconsin, Madison, WI 53706, USA (Received February 1992; final version received March 1994) Abstract There are frequent expressions of concern in the accounting, economics, and legal literature about managers’ conflicting duties and incentives in management buyouts. This study is motivated by a concern about the managerial incentive to reduce reported earnings prior to the announcement of the buyout proposal. Our analysis of a sample of 175 management buyouts during 1981-88 provides evidence of manipulation of discretionary accruals in the predicted direction in the year preceding the public announcement of management’s intention to bid for control of the company. KeJ’ words: Contracting; JEL classification: Earnings management; Accruals; Management buyouts G34 1. Introduction Firms involved in going-private restructurings provide unique opportunities to investigate important accounting, economic, and legat issues. The accounting *Corresponding author. The authors want to thank Sharad Asthana, Larry Brown, J. Stanley Fuhrmann, Jerry Han, Jim McKeown, Steve Rock, Terry Warfield, Richard Willis, the workshop......

Words: 9445 - Pages: 38

Premium Essay

Management Buyout

...Management Buyouts: A Framework for Value Realization Management buyouts (‘MBO’s) have become increasingly popular in recent years due in large part to the abundance of available capital in the North American marketplace. They can be particularly attractive as an exit strategy for business owners looking to retire and for corporations seeking to divest of a non-core business segment. In addition to the many Canadian-based financial investors searching for good MBO candidates, a growing number of players from the United States and other parts of the world are looking to Canada due to the scarcity of good prospects and the quality of the companies and management teams that reside here. Financial investors will compete among themselves for the chance to secure an opportunity that meets their investment criteria. Financial investors may take a minority equity interest or a majority stake in an investee company, and some financial investors specialize in certain industry sectors. Most financial investors publicize their areas of interest and general investment criteria on their websites. There a three main parties involved in an MBO: the owner of the company who is seeking to divest, the management team looking to acquire an equity interest, and the financial investor seeking a return on invested capital. In order to be successful over the long term, an MBO must be structured to satisfy the collective, yet sometimes conflicted, interests of these parties. This article examines......

Words: 2269 - Pages: 10

Premium Essay

Leveraged Buyout

...Rawat G13095 Vikram Bhatt G13116 A leveraged buyout (LBO) is when a company or single asset (e.g., a real estate property) is purchased with a combination of equity and significant amounts of borrowed money, structured in such a way that the target's cash flows or assets are used as the collateral (or "leverage") to secure and repay the money borrowed to purchase the target-company/asset. Since the debt (be it senior or mezzanine) has a lower cost of capital (until bankruptcy risk reaches a level threatening to the lender[s]) than the equity, the returns on the equity increase as the amount of borrowed money does until the perfect capital structure is reached. As a result, the debt effectively serves as a lever to increase returns-on-investment (ROI). The purpose of a LBO is to allow an acquirer to make large acquisitions without having to commit a significant amount of capital. A typically transaction involves the setup of an acquisition vehicle that is jointly funded by a financial investor and management of the target company. Often the assets of the target company are used as collateral for the debt. Typically, the debt capital comprises of a combination of highly structured debt instruments including prepayable bank facilities and / or publicly or private placed bonds commonly referred to as high-yield debt. India has experienced a number of buyouts and leveraged buyouts since Tata Tea’s LBO of UK heavyweight brand Tetley for ₤271 million......

Words: 2273 - Pages: 10

Premium Essay

Leverage Buyouts

...Lindsey Bembry Leveraged Buyouts A leveraged buyout, LBO, is an acquisition of a company or a portion of a company with a considerable portion of loaned funds. The assets of the target company are used as collateral. Each leveraged buyout is unique in that companies have their own capital structure. The one characteristic that is common within each LBO is the use of financial leverage to complete the purchase of the target company. In order for a LBO to take place, an investor, private equity firms or financial sponsor is needed. In a typical LBO, the firm obtaining the company will finance the purchase with a mixture of debt and equity. A segment of the debt in a LBO is protected by the assets of the target company. New cash flows from the bought out business are then used to pay the debt from the buyout. Leveraged buyouts happen to companies of all sizes and in all different types of industries. However, some elements from possible target firms include; small debt loads, history of positive cash flows, a significant amount of tangible assets, the possibility of new management making improvements, and for valuation/stock price to be minimal. Debt financing is borrowing money from a source with the intent to pay back the principal plus an agreed upon interest. An advantage of debt financing is those who use it can maintain ownership. Corporate balance sheets typically use principal and interest payments as a business expense which can be deducted from......

Words: 1109 - Pages: 5

Premium Essay

Inbev’s Buyout

...The article, This Bud May Be for the Belgians, discusses InBev’s buyout of Budweiser. Discuss the value of the brand from a consumer perspective. Some of you may not be beer drinkers, or drink any alcohol, but you are still a part of a culture where beer drinking is an identifiable lifestyle component, so you should be able to provide some perspective. Some things to consider are Budweiser’s targeted blue-collar market segment, its country of origin, and our nationalistic “pride of ownership.” Switch perspectives a bit, and consider how international consumers might value the quintessential American beer. Do you think that coming from the US enhances the value to overseas customers? Why or why not?  (Blenkinsop & Geller, 2014) In replying to other classmates, discuss the consumer perspective, thinking about your own exposure to Budweiser’s products and promotions. Include your thoughts on the value of any of the AB brands. Even though I am not a beer drinking but during socializing events majority of my friends and the people I have observed prefer international beer (i.e. Russian, German etc). During the initial stages of the InBev buyout of Budweiser the response was not that great Hence, the AB InBev buyout adopted to understand and address factors hindering Budweiser’s growth in the US as well as build or introduce the brand in other markets helped them achieve strong in-market performance globally. In addition, the brand is now successfully developing a......

Words: 599 - Pages: 3

Premium Essay

Amc Case

...The Buyout of AMC Entertainment (AMC) 1. What are the current strengths and weaknesses of AMC (before the proposed buyout) and the movie theater industry as a whole? 2. In what ways does AMC conform or not conform to an "ideal LBO target"? 3. Why does JPMP want to own AMC? In particular, what are the value-creating opportunities for this transaction? 4. What are the main risks of the transaction? Does the existence of Apollo Management , L.P. make the deal more or less risky? If things do not go as planned, what downside protection, if any, does JPMP have? Obviously, explain your answer. 5. What is the per share value of AMC to JPMP under the proposed LBO? Use the APV approach to value AMC. You can use an exit multiple of the adjusted EBITDA of 8 as an estimate of the terminal value. Calculate the price based on the 2 following assumptions. Obviously, parts a and b will be done using Excel. When you do your case, make sure the spreadsheet printouts are easy to follow, label everything, etc. a. Using the APV, calculate the per share value assuming the debt level will stay constant after 2009 to calculate the terminal value of the interest tax shield. b. Using the APV, calculate the per share value assuming the terminal value of the interest tax shield is zero. c. Comment on the impact of the terminal value of the tax shield on the overall value of this deal. d. Comment on the appropriateness of...

Words: 383 - Pages: 2

Premium Essay

Dell's Buyout

...Dell’s Buyout Dell has always been one of the largest PC makers in the United States. Recently, though its share of the PC industry has been declining. It went from the number one low cost provider of PCs in the world to number 3. Its inability to adapt to the new markets that have emerged has caused the company to fall behind other hi-tech companies such as IBM, Apple, and even HP. I feel this is an important topic because it is an example of a large company that has lost touch with what consumers want and is currently trying to restructure itself in order to gain back the dominance they once had. Consequently, Michael Dell has announced his decision to attempt a leverage buyout in order to retain control of his company. Furthermore, throughout this paper, I will present the pros and cons of a leverage buyout and analyze the decision of Michael Dell to buy back his company. Jeff Sommer from The New York Times attempts to explain the situation in his article “The Dice are rolling on Dell’s Legacy” from the New York Times and goes into detail of the largest leveraged buyout that is taking place in the US since the financial crisis in 2008. Michael Dell founded his own tech company known as Dell in his dorm at the University of Texas in 1984. He revolutionized the PC industry when he created personal computers that were more powerful, reliable, and inexpensive whose features were able to be customized by the buyers (Sommer). Technology has evolved exponentially since then......

Words: 2390 - Pages: 10

Premium Essay

Leveraged Buyout Allen Michel and Israel Shaked RJR Nabisco: A Case Study of a Complox Lovoragod Buyout Several features of RJR Nabisco made it a particularly attractive LBO candidate. Its operations exhibited moderate and consistent growth, required little capital investment and carried low debt levels. Its problems—a declining return on assets and falling inventory turnover—appeared fixable. And it offered significant break-up value. Valuing RJR's equity at the time of the LBO requires detailed knowledge of the company's operations and extensive number crunching. The analysis is obviously quite dependent on the assumptions made about cash flow in the post-LBO period, as well as the long-term, steady-state growth rate. Nevertheless, the figures suggest that, even assuming a high, 5 per cent level of steady-state growth, RJR's cash flows would have to grow at a rate of at least 18 per cent per year to justify KKR's bid of $109 per share. RJR's board played a prominent role in the bidding process. By setting the bidding rules, the board successfully minimized the possibility of collusion and thus increased potential gains to stakeholders. The decision to accept KKR's offer over RJR management's higher bid appears to reflect the board's concern for employees and existing shareholders. OTH THE POPULAR press and the academic press have devoted extensive coverage to leveraged buyouts, but neither has devoted much attention to analyzing the features of a specific LBO.^ The RJR Nabisco B ...

Words: 8011 - Pages: 33

Free Essay

Amc Executive Summary

...AMC theaters is and American movie theater and it is operated by AMC Entertainment Inc. The Durwood brothers founded it in 1920 and nowadays AMC Company occupies the second-largest place on the chain of the American cinema market share, behind Regal Entertainment group and ahead of Cinemark Theaters. The theatres welcome approximately 200 million guests annually through the doors of its more than 300 locations and with 4960 screens. With innovative amenities and a focus on providing a bunch of movies in the best theatre environment. In hence, AMC is recognized as an industry leader and an iconic destination. The company has 346 locations around the USA, mostly in North America. They also have more location outside USA in Mainland China, home of its corporate parent. Moreover, the headquarters of AMC is located in Leawood, Kansas. AMC’s objective is based to welcome every people to their theaters gates to all associates and make them to live every experience amazing. Also, on the other hand, AMC plans to expand their structure worldwide with the idea of having icon locations in major urban areas and other select areas. On the competition section, AMC was the first cinema who created multiplexing, which is the act of building a movie theater complex with multiple screens converting a unique environment using motion picture exhibitors (traditional method) to increase operating activities efficiencies. However, multiplexing has been discontinued to be a competitive advantage for......

Words: 343 - Pages: 2

Premium Essay

Leverage Buyout

...Leverage Buyout A leveraged buyout (LBO) occurs when an investor, typically a financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing). The assets of the acquired company are used as collateral for the borrowed capital, sometimes with assets of the acquiring company. Typically, leveraged buyout uses a combination of various debt instruments from bank and debt capital markets. The bonds or other paper issued for leveraged buyouts are commonly considered not to be investment grade because of the significant risks involved. Management buyouts (MBO) are similar in all major legal aspects to any other acquisition of a company. The particular nature of the MBO lies in the position of the buyers as managers of the company, and the practical consequences that follow from that. In particular, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. The seller is also unlikely to give any but the most basic warranties to the management, on the basis that the management knows more about the company than the sellers do and therefore the sellers should not have to warrant the state of the company. Aside from debt financing, one of the principal features of the leverage buyout is the ability to unlock value in an undervalued company. The corporate raiders of the 1980's were famous, if not notorious,......

Words: 1080 - Pages: 5

Premium Essay

Leveraged Buyouts

...Leveraged Buyouts A leveraged buyout or LBO is a restructuring strategy whereby a party, typically a private equity firm, buys all of a firm’s assets in order to take the firm private. ( Hitt, Ireland & Hoskisson, p. 207) A leveraged buyout also prevents the company’s stock from being publicly traded. In 2006, HCA quickly agreed to a $21 billion leveraged buyout from several private equity firms, including Bain Capital, Kohlberg Kravis Roberts & Co., and Merrill Lynch. The deal also included the assumption of $11.7 billion in debt. All stockholders received $51 in cash and a premium of 6.5 percent of the previous day’s closing price. However, this price was below the price at which the stock traded in late 2005 and early 2006. (“HCA Agrees,” 2006) HCA is only one example of large companies being willing to go private because they are unhappy with scrutiny from investors and regulators. Once a company is acquired, there is always an option for them to go public again. There are however, some downfalls once privatized. Generally, the first step to take place is company restructuring. Restructuring may include downsizing through layoffs and/or completely eliminating entire company divisions or sections. Unfortunately, this may cause resentment from the remaining staff, and can result in negative effects from the community as a whole which can hinder the company’s economic growth and prosperity. (“Our History,” 2011) However, once all of the dust has settled and the company......

Words: 359 - Pages: 2

Premium Essay

Amc Entertainment

...The Buyout of AMC Entertainment Private Equity & Leveraged Buyout November 30, 2009 FI 8320 – Corporate Finance Strategy Kevin Mullally Aaron Nowak Regina Ordonez Joel Pierce Jeff Smith The Buyout of AMC Entertainment Table of Contents Executive Summary....................................................................................................................................... 1 The Market for LBOs ..................................................................................................................................... 2 LBOs in the Movie Industry ........................................................................................................................... 3 JPMP and AMCE ............................................................................................................................................ 3 Transaction Risks........................................................................................................................................... 4 The Buyout Proposal ..................................................................................................................................... 4 Conclusion ..................................................................................................................................................... 5 Appendix A: Top 10 US. Theater Circuits (as of June 1st, 2004) .................................................................... 6 Appendix B:......

Words: 4846 - Pages: 20