Bud Mayo, the cinema executive who led small exhibitors into digital and 3-D, said he’s interested in buying Cablevision Systems Corp. (CVC:US)’s Clearview theaters, which would quadruple his screens and plant a flag in New York.
Mayo’s Digital Cinema Destinations Corp. (DCIN:US) views Clearview, which was put up for sale in May, as one of many takeover candidates among theaters that haven’t completed the switch to digital projection, the 18-year industry veteran said in an interview. While buying all of Clearview’s 230-plus screens would require a partner, Digital Cinema could digest individual locations on its own, he said.
The executive, who founded Clearview in 1994 and sold it to Cablevision five years later, took Westfield, New Jersey-based Digital Cinema public in an April IPO. He says his Digiplex chain can prosper amid stagnant industry attendance by using digital technology to screen live concerts, sports and art-house films on weeknights, when occupancy falls as low as 5 percent. The right event can generate 10 times the revenue of the most popular films on those evenings.
“There are people who can go out to the theater during the week and they’re not going out now,” Mayo, 71, the company’s chairman (DCIN:US) and chief executive officer, said in the interview last month.
Mayo declined to say if he’s in talks for Clearview or any other group in particular. Charles Schueler, a Cablevision spokesman, also declined to comment. The Bethpage, New York- based cable company said on a September conference call that efforts to sell Clearview are “ongoing.”
Mayo plans to build Digital Cinema into 1,000 screens in top U.S. markets from the 85 it now runs in nine Northeast locations. On a September earnings call, he said he has identified potential takeover targets with about 400 screens.
Clearview, which operates the Ziegfeld Theater and two others in Manhattan, has more than 230 screens in 45 location, mostly in New York and New Jersey, ideal markets for alternative content, Mayo said. The chain may be worth about $123 million, the May estimate of Paul Sweeney, Bloomberg Industries’ North American research director. That’s more than five times Digital Cinema’s $23.2 million market value.
About a fourth of Clearview’s theaters have been upgraded to digital projection, Mayo said. Hollywood studios plan to stop distributing movie prints by the end of next year.
Digital Cinema’s potential targets include small “mom-and- pops” struggling with conversion. Mayo also expressed an interest in the remaining locations of Rave Reviews Cinemas LLC, owned by BV Investments Partners. The private-equity group agreed on Oct. 1 to sell 16 of 21 locations to Carmike Cinemas Inc. (CKEC:US) for $19 million plus about $100 million in assumed leases.
Chris Tofalli, outside spokesman for Boston-based BV Investment, said the company had no comment on possible bids.
Digital Cinema rose 0.2 percent to $5.14 at the close in New York. The stock has declined 16 percent since the IPO, in part because of a weak third-quarter box office, according to John Tinker, a New York-based analyst with Maxim Group. Mayo controls the company through Class B stock representing 67 percent of the voting power, according to regulatory filings (DCIN:US).
The company finished its June 30 fiscal year with $2.04 million in cash and no debt. It obtained a $10 million term loan (DCIN:US) in September and plans to finance purchases with cash and equity, Mayo said on a Sept. 20 conference call.
Before founding Digital Cinema Destinations, Mayo ran Cinedigm Digital Cinema Corp. (CIDM:US), a company that converted theaters to digital projection and assisted in arranging loans to cover the costs.
With 80 percent of U.S. cinemas converted, major film studios plan to stop providing film prints by the end of 2013. The change is expected to create buying opportunities as some owners leave the business.
Regal Entertainment Group (RGC:US) and Carmike, the No. 1 and No. 4 U.S. chains, have said they’re seeking acquisitions. In September, China’s Dalian Wanda Group bought the No. 2 U.S. chain, AMC Entertainment, for $2.6 billion, or about eight times cash flow, according to Tinker.
“That is obviously creating a lot of interest,” Tinker said. “So there’s a ‘money in the space’ kind of thesis.”
Alternative content averages 8 percent of Digital Cinema’s revenue, the company said in documents prepared for investors, with the company shooting for 20 percent, according to Tinker.
Examples include a Wednesday night simulcast of “West Side Story” on Broadway that took in $2,425 in one theater. The top- grossing film that night generated $73.36 on a separate screen. Ticket prices can be as much as $30, Tinker said.
The extra revenue is almost all profit, said Tinker, who recommends (DCIN:US) buying Digital Cinema stock because of the potential for such programming and because the company owns its digital projection equipment, keeping fees that would otherwise go to equipment suppliers.
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