The Buyout of AMC Entertainment Harvard Case Solution & Analysis



The environment for leveraged buyout (LBO) became noticeable in 1980 because of the start of the attractive mergers 1970. The mergers and acquisition were attracted at that time because it was considered to be one of the ways to operate in an effective manner. Furthermore, the thought at that time was the management before LBO did not receive any equity interest and the incentive related to the equity so that after LBO, the management could receive equity interest and incentives related to the equity, in order for them to work hard. This story was till the 1980, because in 1980 most of the LBO targets were mature and asset rich companies, and therefore their requirements of capital were low. Thus,after the 1980 the rate on high-yield debt rose to 3.5% in 1986 to 10.3% in 1990. This increase in the interest rate led many companies to file the bankruptcy. Furthermore, by 1995, this LBO process again started gradually and was on track till 9th September 2001. The LBOs were again high in the 1998 as shown in the exhibit 1 and it fell down in 2001, however it again increase in 2003, but at this time the competition was greater than the earlier one because the U.S economy was focusing towards the technology rather than manufacturing.

In my opinion, the incentive based approach will lead to the sponsors of LBO to a good return.This is the factor, which had or will have the most influence.


One of the positive of conducting the LBO in the movie industry is that it is a growing industry and has performed well since 1945. It has provided good returns with steady growth. Another positive is the interest rate in the industry that has declineat the lowest level as compared to the history therefore,the equity valuation would be beneficial and at the end of the day the investor can exit with a good return.

One of the negative of conducting the LBO in the movies industry is that it is a dependent industry such that its growth and the profit are dependent on the upcoming movies. If the movies will be successful or will be block busters, then the revenue will also increase and if the movie will be flopped then the revenue will also reduce. Therefore,it is a highly dependent industry.

Another negative point is that many large players in this industry have filled bankruptcy recently because of the excess screen capacity and the excess screen capacity led to the poor financial performance. Another point is that people are now more into watching movies at home or playing games rather than visiting the cinemas.This technological change can affect the potential growth of the industry.

AMCE conformed to the idle LBO target as it is a major player in this industry and is used to survive even in major crises.This is because of the experts in the team of the management who worked hard to let the AMCE come to the top.


There are a lot of value creating opportunities in the AMCE for which JPMP wants to own AMCE. First of all, the company is viewed as having a leading circuit of theater, which is large, more efficient and more professionally operated than its competitors.

Another reason is that the management team at AMCE is highly regarded in the market as the best management team with a reputation of most efficient employees and the continuous innovators often in the area where others cannot reach.This shows that they have invested $250 million in the acquisition and mergers and that they have become the second largest theater chain in the United States.

Another point is that as there is recession in the market, therefore the market is not recognizing the true value of AMCE, as it is at the lower multiples than its competitors. JPMC has a strategy to find the ideal candidate for LBO, which has experienced and well trained management, so that they can create value by driving revenue growth and the increase in cost efficiency.


The industry, currently for the short period, is not performing as the market’s expectation and due to the given statement; many of the players in this industry have filled bankruptcy. Therefore,it is riskier for any investor to invest in such as industry which is on a decline. On the other hand, Apollo Management, L.P., is the major shareholder of AMCE, which can easily create resistance in this transaction. Apollo is an active investor and can demand the same return as JPMP, there fore this will be difficult for JPMP to convince Apollo to invest in the buyout..............................

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