Hicks Muse Cancels UA Theatre Deal

Corporate-buyout specialist Hicks, Muse, Tate & Furst on Friday canceled its previously announced plan to buy the company that runs the United Artists Theatre chain in a deal valued at $850 million.

Hicks Muse said it is still committed to a separate deal in which the firm would jointly own the nation’s biggest chain of movie theaters. Hicks Muse didn’t say why it scuttled the pact to buy Oscar I Corp., a privately held firm led by affiliates of Merrill Lynch & Co., and Hicks Muse officials declined comment.

Oscar I and UA Theatre, based in Englewood, Colo., confirmed that the takeover was dead and said they would move instead to refinance UA Theatre to bolster its performance.

A source close to the negotiations, who agreed to speak on the condition of anonymity, said the talks broke down over price and that Oscar I and UA Theatre ultimately said “no thanks” to Hicks Muse’s revised proposals.

Some analysts speculated that the snag stemmed from the amount of investment needed to make UA Theatre’s older movie houses more competitive with the larger multiplexes opening across the country. The chain has 2,200 screens.

“United Artists is a property that needs a lot of work,” said Arnie Ursaner, an analyst at CJS Securities in White Plains, N.Y.

Hicks Muse had planned to pay $300 million for UA Theatre and assume about $550 million of debt. Interest on that debt is a key reason why UA Theatre lost money in the first half of last year, according to government filings.

In its statement Friday, UA Theatre asserted that its operating performance is improving, that the company has slashed its costs and that it now has a “more focused future business plan.”

Hicks Muse emphasized that it is still committed to joining with Kohlberg Kravis Roberts & Co. to buy another chain, Regal Cinemas Inc., for $1.5 billion. The pair had planned to merge UA Theatre with Act III Theaters Inc., which KKR is buying, and with Regal Cinemas to create the largest U.S. movie-theater company, with about 5,200 screens.

Even without UA Theatre, the merger of Act III and Regal would create a company with about 3,070 screens, enabling it to surpass the current industry leader, Carmike Cinemas Inc., which has 2,720 screens.

Hicks Muse and KKR said they plan to use Regal as a “platform” business that would buy additional rivals in the fragmented theater industry. They also like the theater field’s strong fundamentals, including rising film production and increasing spending on movie advertising and promotion.

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Bloomberg News was used in compiling this report.