United Artists Communications will buy half an interest in the 431-screen Commonwealth Theater chain in a joint venture with the chain's new owner, Renta Corp., a Spanish affiliate of Los Angeles-based Cannon Group.
United Artists Communications, a Denver holding company with major interests in cable-television systems as well as theaters, announced Wednesday that it "committed up to $40 million to the joint venture." The exact purchase price depends on determination of Commonwealth's cash flow, the parties said.
Cannon, an independent film producer, bought the chain of 195 theaters with 431 screens in May, 1986, for $25 million plus the assumption of $25 million to $30 million in Commonwealth debt.
Less than six months later, the chain was put on the market when Cannon ran into major financial problems. Renta, controlled by a European group that has acquired more than 40% of Cannon since last spring, said it completed its purchase of Commonwealth last month. Cannon has continued to manage the theaters, which are located in 12 Midwestern and Western states.
The price to be paid by United Artists Communications for a 50% interest in the Kansas City, Mo., chain would be "based on a cash flow multiple," according to UAC spokeswoman Judith Geist Pugh.
Some in Major Cities
Commenting on a report that the value of Commonwealth will be calculated at six times annual cash flow--or earnings plus depreciation--Pugh said the multiple was "about six." She confirmed that the existing debt on the property would be included in the valuation.
Lisbeth R. Barron, a research vice president at Zorn Balis Gerard Inc., a New York investment firm, estimated Commonwealth's recent annual cash flow at $8.5 million a year. A multiple of six would yield a figure of $51 million, she noted.
Adding outstanding debt on the properties that she estimated at $20 million, Barron said the total value of Commonwealth could be calculated at $71 million.
Based on that figure, she projected an approximate price of nearly $36 million on the 50% interest to be acquired by UAC.
The deal also would include "certain loan commitments to Renta," according to the UAC spokeswoman. She did not give details but said they were not a major factor in the "up to $40 million" cited in the announcement.
Under the proposed joint venture, UAC will take over the management of certain Commonwealth theaters in some major cities, including Denver, according to both parties.
Last fall, Cannon fired an estimated 40 Commonwealth employees, including top management, after agreeing to sell the chain and other U.S. property to Renta. Barry Lublin, then Cannon's senior executive vice president, was put in charge of Commonwealth.
The United Artists Communications deal is subject to execution of a definitive agreement, the parties said, and the transaction is expected to be completed in April.