The Buyout of AMC Entertainment Harvard Case Solution & Analysis

STRENGTH AND WEAKNESS

The strength in buyout of AMCE is that anyone can enter in this industry. In this case, JPMP is considering purchasing the AMCE through this way it can exploit this industry. AMCE is the second largest theater in the United States of America;there fore the acquisition can provide the strength to play with this industry. The acquisition can focuson the buyer on its strategic objectives because of the successful management of AMCE that can provide steady returns as here the demanding rate of return of JPMP is 20-25%.

The weakness in this transaction is that the buyout of any company is risky; same is the case with AMCE. It has a huge debt liability, which should be paid by the buyer in order to achieve the expected growth and the required rate of return.

SHARE PRICE CONSIDERING THE INVOLVEMENT OF APOLLO

Apollo is the largest investor of AMCE and it is one the active investors in the industry. In order to proceed and to purchase AMCE, JPMC has to consider before making any decision as it has the power and can create resistance in the deal. The involvement of Apollo can benefit JPMP and the funds in further moving on with the deal. JPMP has to give the same return as it is requiring that is 20-25%. This is because the required rate of return is the same as the required rate of return of JPMP.

OFFER PRICE PER SHARE

The offer price that JPMP should offer to AMCE is $16 to $47.7 (EXHIBIT). It means that JPMP can offer any of the price between above range. The current market share price of AMCE is $16 and this is the undervalued price, therefore there is a large difference inthe market price as it is much lower than the price calculated. The return of 20-25% can be maintained in the range given for the share price above.

EXIT OPTIONS

In the normal scenario, every investor keeps the exit option from the investments with the same return as it was required at the time of initial investment. In the given scenario, the exit option is that JPMP can sell its investment if things do not go in the expected manner. Currently, the share price is under valued therefore,it would give advantage because it can increase to the, at least, the market level.Another option is that JPMP can invest further in this business as the management is competent and growing therefore, this will make it more profitable then selling it to the potential buyer.

CONCLUSION

Overall, AMCE looks to be an attractive strategic buyout option. It is currently undervalued and this is the right time for any investor. There are many other factors that influence the deals such as the management of the company being competent, and that the management of the company survived the time of recession when other players in the same industry filed bankruptcy. The company is the second largest theater in the United States therefore,it can influence the industry. AMCE is a growing company since its inception. Its revenues and EBTIDA margins have increased over the period. Therefore,considering all such strategic attractiveness it can be said JPMP should move further with the deal.......

 

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