National CineMedia Inc. , Centennial, Colorado, announced yesterday (May 5/14) that it had entered a merger agreement with New York-based rival Screenvision  for $375 million of cash and stock on a debt free, cash free basis.
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 Inc. is the managing member and owner of 45.8% of National CineMedia LLC, 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 the approximately 9.9 million shares. The combined operation is expected to result in an estimated $30 million of annual operating cost synergies.
Announcement of the merger came on the same day as National CineMedia Inc.’s release of Q1, 2014, results that showed a decrease in total revenue of 14.6% to $70.2 million from $82.2 million for the comparable quarter last year. (See separate article.) During the Q1 results announcement, Kurt Hall, National CineMedia’s chairman and CEO, said that the merger “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 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.”
Back in February, National CineMedia announced that total revenue for the year ended Dec. 26, 2013, increased $14.0 million , or 3.1% to $462.8 million, compared to $448.8 million for the 2012 period. Advertising revenue for the year ended Dec. 26, 2013, was $426.3 million, an increase of 4.1% compared to $409.5 million for the 2012 period.
It subsequently made moves to strengthen its national cinema ad network.  Now, the new merged network 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.
“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,”
“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,” Screenvision’s CEO Travis Reid said. With the choices for advertisers continuing to grow daily, Reid said that this business combination will 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. It is expected that federal approval could take as long as six months.
NCM presents cinema advertising across the nation’s largest digital in-theater network, comprised of theaters owned by AMC Entertainment Inc., Cinemark Holdings Inc., Regal Entertainment Group and other leading regional theater circuits. NCM’s theater advertising network covers 183 Designated Market Areas (49 of the top 50) and includes over 19,800 screens (approximately 19,000 connected to its Digital Content Network).
The Screenvision cinema advertising network is comprised of over 14,200 screens in 2,200+ theater locations across all 50 states and 94% of DMAs nationwide; delivering through more than 150 theatrical circuits, including six of the top 10 exhibitor companies.
Screenvision recently had worked on touting its young movie-going audience as a way to grab some of the $70 billion that goes to television. Comic-book adaptations like The Avengers, and teen survival stories like Hunger Games, has been helping theaters sell advertisers on their younger movie-goers.
Last year, Screenvision started TV-like sales guarantees and upfront-style buying opportunities, which helped boost its revenue by 20% in 2013.The firm picked up 50 new advertisers during the same period, including Apple, Google, Netflix and Spotify, who have been hoping to reach elusive young adults.
National CineMedia was advised in its new transaction by J.P Morgan as financial advisor and Sherman & Howard LLC and Dechert LLP as legal counsel. Moorgate Partners and Greenberg Traurig LLP advised National CineMedia’s independent directors. Barclays has been acting as exclusive financial advisor to Screenvision, while legal counsel to Screenvision is Latham & Watkins LLP.