AMC Entertainment Holdings, Inc. Building the Cinema Experience of Tomorrow
Total Page：16
File Type：pdf, Size：1020Kb
AMC Entertainment Holdings, Inc. Building the cinema experience of tomorrow. Turnaround Management Final Project Professor Kathryn Harrigan December 18, 2020 Kartikeya Dar | Nazar Kamenchenko | Tae Kim | Konstantin Malyshkin Cover Photo: “AMC Dine-In Theater, Disney Springs” by Michael Rivera CC BY 4.0 Disclaimer: the report colors are based on Columbia University and not AMC’s design. TABLE OF CONTENTS 1. Executive Summary ........................................................................................................4 2. Company Overview ........................................................................................................5 3. Industry and Competition ................................................................................................7 Industry Overview ............................................................................................. 7 Competitive Landscape..................................................................................... 7 SWOT Analysis ............................................................................................... 10 Peer benchmarking ......................................................................................... 12 Key Competitors’ Response to COVID-19 ...................................................... 13 Near-term Catalysts ........................................................................................ 16 4. Situation Overview ....................................................................................................... 17 COVID-19 Pandemic ....................................................................................... 17 Capital Structure ............................................................................................. 23 Leases and Rent Expense .............................................................................. 24 Ownership Structure and Creditor Relations .................................................. 25 5. Turnaround Proposal ................................................................................................... 26 Strategic RECOMMENDATIONS ................................................................... 26 Operational RECOMMENDATIONS ............................................................... 28 Financial RECOMMENDATIONS AND Restructuring Options....................... 29 Implementation ................................................................................................ 30 Valuation Analysis .............................................................................................................. 32 Liquidation ....................................................................................................... 32 Going-concern valuation ................................................................................. 34 Recovery waterfall ........................................................................................... 35 6. Conclusion ................................................................................................................... 36 Summary of recommendation ......................................................................... 36 Short-term Outcomes ...................................................................................... 36 Long-term Perspective .................................................................................... 36 Monitoring Progress ........................................................................................ 36 REFERENCES ................................................................................................................... 37 Appendix ............................................................................................................................ 38 2 AMC Entertainment Holdings Turnaround Plan 1. EXECUTIVE SUMMARY AMC Entertainment Holdings, Inc. (“AMC”) is a recommendations, along with their respective leading global operator of cinemas, boasting an implementation timelines. Inter alia, it highlights expansive geographical footprint over 15 countries short-term initiatives to improve profitability and long- and strong revenue growth over the recent years. term market positioning, combining AMC’s rich Despite a comparatively strong attendance (by history and understanding of theatre operations with industry’s metrics), the company’s diverse offerings innovative approaches like dynamic pricing and real- and immersive theatres have failed to materialize time customer engagement. into superior profitability, with AMC lagging its peers By delivering immersive experiences (the future of in terms of EBITDA margins. cinemas), we believe AMC will continue to draw a The 2020 COVID-19 pandemic and the related meaningful audience to support top and bottom line shutdowns caused an industry-wide drop in revenue. growth. But before the company can begin to The negative impact on AMC’s earnings was undertake some of the longer-term initiatives, it amplified by the firm’s significant operating leverage, needs to address its capital structure and liquidity forcing the company to implement operational situation. While our analysis suggests AMC has changes and engage with lenders to amend its potential to deliver attractive returns to its investors, existing debt. the immediate situation requires the company to address its balance sheet obligations in a way that Although AMC was able to buy itself some time, the will allow it to emerge, as attendance rebounds. company is facing an imminent liquidity crisis, as it heads into the 2021. We believe this situation While we have formulated a wide array of potential presents an opportunity for AMC to calibrate its long- short- and long-term changes, we urge the company term strategic vision and realign operations with a to begin experimenting with different initiatives, view towards the long-term sustainable profitability. scrutinize the impact of these efforts, and double down on those, which show the most promising The below proposal is composed of specific results. Ultimately, their effectiveness can only be strategic, operational, and financial verified with localized execution. All we got to do is raise a little money and we’ll be just fine. Adam M. Aron President, CEO and Director AMC’s quarterly earnings call on November 2, 2020 4 AMC Entertainment Holdings Turnaround Plan 2. COMPANY OVERVIEW Company Background1 Originally formed as Durwood Theatres, AMC was founded in 1920 by Maurice, Edward, and Barney Dubinsky in Kansas, Missouri. When Edward’s son, Stanley Durwood, took control of Durwood Theatres in 1961 and renamed the firm as American Multi-Cinema (AMC), it was a 10-theatre chain. AMC is now the largest theatre operator in the world. Before the COVID-19 struck, the firm commanded a market share of ~22% in the US, ahead of Cineworld as the second at ~17% and Cinemark third at ~14%. As of December 31, 2019 (pre-COVID-19), AMC operated 1,004 theatres and 11,041 screens in 15 countries, including 636 theatres and 8,094 screens in the US, and 368 theatres and 2,947 screens internationally. 356 million customers attended AMC theatres in 2019, and AMC employed 3,952 full-time and 34,920 part-time employees as of 2019-end. The Dalian Wanda Group (“Wanda”) and Silver Lake Partners collectively hold the majority of AMC’s outstanding common stock and voting power. AMC grew significantly, primarily inorganically, after its acquisition in 2012 by Wanda for ~$2.6B. In 2016, AMC completed a transaction to acquire Carmike Cinemas and became the largest theatre operator in the US. Further, in 2016 and 2017, AMC made a concerted push to expand into Europe. As a result, it acquired Odeon and UCI Cinemas Holdings (“Odeon”) and Nordic Cinemas Group Holding (“Nordic”). These three acquisitions, which cumulated to ~$3B, were funded with a substantial amount of debt and required AMC to assume each of the targets’ debt. Consequently, AMC became highly leveraged. A refinancing in 2019 reduced AMC’s ongoing interest service, however did not materially reduce its debt burden. Going into the 2020, such leverage caused AMC to be particularly susceptible to distress because of the pandemic. Historical Financial Performance Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Revenue $ 1,200 $ 1,506 $ 1,317 $ 1,448 $ 942 $ 19 $ 120 EBITDA 87 226 140 238 (9) (346) (352) % Margin 7% 15% 11% 16% (1%) (1,833%) (294%) Net Income (130) 49 (55) (13) (2,176) (561) (906) Non-Cash Charges 181 120 124 172 2,153 159 612 Change in NWC (50) (17) (12) 210 (161) 170 (62) Cash Flow From Operations $ 1 $ 152 $ 57 $ 369 $ (184) $ (232) $ (356) CapEx (115) (127) (118) (170) (92) (35) (29) Free Cash Flow $ (113) $ 25 $ (62) $ 199 $ (276) $ (267) $ (385) iSource: Company Filings, team analysis AMC is well known for its innovation. In 1962, AMC introduced the world to multiplexes. In 1981, it was the first theatre chain to introduce cup-holder armrests. In 1995, AMC opened the first megaplex. After a century of existence, has the sheen worn off? 1 AMC’s website, presentations and filings 5 AMC Entertainment Holdings Turnaround Plan Geographical Footprint2 AMC’s business is divided into two geographical segments: US markets and international markets. While it competes in terms of number of screens in other regions, it dominates the market in the Mid-Atlantic, South Atlantic, and East North Central regions. A significant number of AMC theatres are in the metropolitan areas of New York, Los Angeles, Chicago, Atlanta, and Washington, DC (in each