National CineMedia

UPDATE: National CineMedia expects it to take about six months to win federal approval for its merger with Screenvision. But once that’s done it should be able to quickly offer the same pre-show programming across both companies’ theaters, NCM chief Kurt Hall told analysts. It’s “a straightforward process” because as much as 80% of Screenvision’s network receives the content via satellite or broadband. NCM would have to pay $28M if it scraps the deal or it’s rejected by the feds, and Screenvision would pay at least $10M — and potentially as much as $18M — if it changes its mind.

PREVIOUS, 1:17 PM: National CineMedia shares are up about 10% in after market trading following its long-anticipated agreement to combine with Screenvision, which pretty much locks up the market for movie theater ad sales. Screenvision owners will receive $225M in cash and $150M in stock. Carmike owns about 19% of the No. 2 theater ad sales company. After the deal, NCM will serve 210 markets in all 50 states, with 34,000 screens that reach more than 1.1B patrons a year, it says.  No word yet on post-merger management or transition plans — but you can be sure that NCM CEO Kurt Hall will be peppered with questions shortly when he talks to analysts in a conference call for his company’s Q1 earnings, released this afternoon.

The combo comes a little more than a week before NCM addresses advertisers for its annual upfront sales presentation in NYC. The union will result in a “more efficient national network” that will “bring more advertising revenue to our theatre circuit partners and a higher quality pre show to their patrons,” Hall says. But National CineMedia also says that it is withdrawing its financial guidance for 2014 while it determines how the merger with Screenvision will change things.

NCM lost $3.1M in Q1, down from a $1M loss in the period last year, on revenues of $70.2M, -4.8% not including the Fathom Events unit it sold in December. The revenue number, and its five cent loss per share, both matched the Street’s expectations.

Several analysts figured the time was ripe for an NCM-Screenvision merger. Benchmark Co’s Mike Hickey noted last week that the window for an agreement had opened “as Screenvision repairs cash flows in front of expiring theater network deals.”

Here’s the release:

 

Centennial, CO – May 5, 2014 – National CineMedia, Inc. (NASDAQ: NCMI) (the Company) announced today that it has entered into a definitive merger agreement with Screenvision, for $375 million of cash and stock on a debt free, cash free basis. The Company is the managing member and owner of 45.8% of National CineMedia, LLC (NCM LLC), the operator of the largest in-theatre digital media network in North America. Following the merger, NCM, Inc. will evaluate whether to contribute the Screenvision assets to NCM LLC. Although it is under no obligation to do so, NCM, Inc. expects that it will contribute the Screenvision assets and debt incurred to finance the acquisition to NCM LLC in exchange for approximately 9.9 million NCM LLC membership units and that the combined operation will result in an estimated $30 million of annual operating cost synergies. The merger will create a higher quality and more competitive video advertising network that will cover nearly all 210 Designated Market Areas® across all 50 states and deliver to approximately 3,900 theatres with over 34,000 screens, reaching over 1.1 billion annual patrons.

Under the terms of the agreement, the Company will pay Screenvision’s owners a total purchase price of $225 million in cash and $150 million of the Company’s common stock (approximately 9.9 million shares, based upon a fixed price of $15.15 per share), subject to a net working capital purchase price adjustment.

National CineMedia’s Chairman and CEO Kurt Hall said, “We are very excited about our merger agreement with Screenvision as it will position the combined new company to be much more competitive in the expanding video and overall advertising marketplace, including the new online and mobile advertising platforms. With the investments we will be making to create one more efficient national network, I am confident that we will bring more advertising revenue to our theatre circuit partners and a higher quality pre show to their patrons.”

Mr. Hall concluded, “As technology continues to empower consumers to watch programming how and when they want and view advertisements if they want, with our broader network reach and improvements we are making to our audience targeting capabilities I am confident that our theatre network will become the one place where brands are comfortable their ads are being seen.”

Screenvision’s CEO Travis Reid said, “I could not be more proud of the Screenvision team’s accomplishments in helping to drive the cinema advertising industry to where it is today. The choices for advertisers continue to grow daily, and I am excited by the possibilities this business combination creates to enable advertisers to use this high-impact medium even more effectively to reach their business goals.”

The acquisition has been unanimously approved by the boards of directors of both the Company and Screenvision, as well as Screenvison’s equity owners, and is expected to close after the receipt of regulatory approvals and the satisfaction of other customary closing conditions.

The Company was advised in this transaction by J.P Morgan as financial advisor and Sherman & Howard LLC and Dechert LLP as legal counsel. Moorgate Partners and GreenbergTraurig, LLP advised the Company’s independent directors. Barclays is acting as exclusive financial advisor to Screenvision and legal counsel to Screenvision is Latham & Watkins LLP.

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