COMPANY TOWN : Hicks, Muse to Buy UA Theatre Parent

Turning its sights on the consolidating movie-theater field, prolific buyout specialist Hicks, Muse, Tate & Furst Inc. agreed Wednesday to buy the company that runs the United Artists Theatre chain in a deal valued at $850 million.

Hicks Muse is buying Oscar I Corp., a closely held firm led by affiliates of Merrill Lynch & Co., and the proposed transaction is only the latest in a string of recent merger deals involving theater chains.

Last month, for instance, Sony Corp. of America and Canada’s Cineplex Odeon Corp. agreed to combine their theater operations into a chain that would be one of the world’s largest, with about 2,600 screens.

The deal also is part of Hicks Muse’s stepped-up expansion into the entertainment and media fields. In the summer, the firm agreed to acquire the radio station chain SFX Broadcasting Inc. for $1.2 billion, and last month it announced plans to buy LIN Television Corp., which runs eight TV stations, for about $1.9 billion.

And Hicks Muse said it would use UA Theatre “as a platform” to expand its role in the movie-theater business, including perhaps more acquisitions. Indeed, despite the recent merger announcements, the theater industry remains highly fragmented with lots of small, locally run theaters still available for purchase.

The business “is ripe for consolidation,” John R. Muse, chief operating officer of Dallas-based Hicks Muse, said in an interview with Bloomberg News.

In addition, “we like the fundamentals of the business,” including rising film production and increasing spending on movie advertising and promotion, which means “support for this product is going up,” Muse said.

UA Theatre, based in Englewood, Colo., already is among the largest U.S. theater chains, with more than 2,100 screens in California and 25 other states. But the company, which has a considerably big debt burden, has been seeking fresh cash for expansion.

Hicks Muse said the purchase price includes $300 million of equity, with the balance debt to be assumed.

Interest on that debt is a key reason why UA Theatre posted an $11.5-million loss, on revenue of $331 million, in the first half of 1997, according to the company’s filings with the Securities and Exchange Commission.

Muse said the firm turned profitable in the third quarter, but that “we look at these types of investments on the basis of cash flow”--or earnings before taxes, interest, depreciation and other items--and that UA Theatre’s cash flow “is growing quite nicely.”

Even so, “UA needs access to capital in order to upgrade and refurbish its theaters,” said Kevin Kuzio, a bond analyst with KDP Investment Advisors Inc. in Montpelier, Vt.

Theater owners also are using mergers to save on costs, gain clout with film distributors, and to finance large-scale expansion projects such as multiple-screen complexes with stadium-style seating and cutting-edge technology.

By combining many movie screens in a single complex, theater owners can save money by operating single, computer-controlled projection systems to multiple screens on one site, and by having more efficient concession stands.

The 10 largest theater operators now control about 50% of the screens in North America, up from 30% a decade ago, said analyst Gary Farber of NatWest Securities Inc.

Under Hicks Muse, UA Theatre would maintain its headquarters and senior management, including Kurt Hall, its chief operating officer, the companies said.

UA Theatre is not related to the film company United Artists Pictures (which is now a division of MGM), but both UA entities were formed in the 1920s by silent-movie greats Mary Pickford, Douglas Fairbanks Sr. and Samuel Goldwyn. In 1986, cable-television giant Tele-Communications Inc. bought control of UA Theatre, which it later sold to the Oscar I group in 1992.

Hicks Muse has been an aggressive corporate buyout artist for some time. Using cash provided by outside investors, it’s made a spree of acquisitions that include industrial products such as foam and electronic circuit boards, and food brands such as Chef Boyardee pasta, Jiffy Pop popcorn and Ghirardelli chocolate.

But of late Hicks Muse has been making a flurry of media purchases, as it rushes to take advantage of the rapid consolidation occurring not only in movie theaters, but also in radio and TV.

And Hicks Muse isn’t the only one. The nation’s most renowned buyout firm, Kohlberg Kravis Roberts & Co., recently agreed to buy a movie-theater chain of its own, the 730-screen Act III Theaters Inc. KKR also was rumored to be eyeing the UA Theatre group.