Regal script is hard to predict

David MoonBlog

This past week Regal Entertainment Group hired Morgan Stanley to explore strategic alternatives for the company. This is not-so-secret code language for “shop it around and try to sell it.”

What might this mean for Knoxville?

“Selling the company” is a fairly broad term that can capture a lot of issues, not just a shift in ownership. Regal’s own history is a perfect case study.

In 1998, nine years after launching Regal Cinemas, founder Mike Campbell sold the company for $1.5 billion to a couple of private equity firms.

Few people even realized it. The company remained in Knoxville. The movies played on.

Three years later, Regal was one of at least eight major theater chains to file for Chapter 11 bankruptcy protection. The private equity firms were wiped out, and two bondholders, Denver billionaire Philip Anschutz and Oaktree Capital Management, took control of the company.

They also took control of theater chains United Artist Theaters and Edwards Theatres, combining the three under a single holding company.

The new larger and renamed Regal Entertainment Group remained headquartered a block or two off Broadway—the one in Fountain City.

Philip Anschutz and related entities own 47 percent of Regal and control 78 percent of the voting shares. Why might he want to sell the company now?

Maybe he is simply trying to raise cash.

Leon Black, CEO of private equity giant Apollo, recently commented that the rising stock market has created a fabulous environment for him to be selling. He said that “private equity firms are selling everything that’s not nailed down.”

Perhaps Anschutz is simply following suit.

A little more than a year ago Anschutz announced that he was “exploring strategic alternatives” for AEG, his sports, music and entertainment venue conglomerate. When no one was willing to pay Anschutz’s asking price, he took the company off the market.

He might think he’ll have better luck with Regal.

Or, he might have decided that Netflix is going to kill the theater business.

He could be frustrated with a stock price that is the same it was in 2006. Or he could be anxious to sell now that the price has more than doubled in the past three years.

If Anschutz sells to another financial-type buyer (as opposed to another theater operator,) there is a very good chance the company’s headquarters would remain in Knoxville. Private equity investors have twice purchased the company, never moving the headquarters.

If one of Regal’s competitors purchases the company, it increases the likelihood that changes would happen in Knoxville. This would be a difficult transaction, however. AMC and Carmike are likely too small to purchase Regal. Cinemark is large enough to do it, but it already has a leveraged balance sheet and would face certain antitrust objections from the Department of Justice.

What does the Regal announcement mean for Knoxville? There are still too many known unknowns to know.