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Interesting column today from Herb Greenberg at TSC. The discussion on the
perils of the need to expand & grow endlessly has parallels in all other
industries, including the "new economy" net <g>.
JW
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Herb on TheStreet: No Need for a Big Screen to View Imax's Stock
By Herb Greenberg
Senior Columnist
9/27/00 6:30 AM ET
Hollywood moments:
o Lights, camera, Imax (IMAX:Nasdaq). Love the movies. Hate the stock.
That, at least, has been the theme on Wall Street in recent days. The
first I heard about it was yesterday from several shorts as it was
falling. (Gee, guys, thanks for not telling me about it before it
fell!) This is a company that put itself up for sale in July.
The stock flew up to about $29, but has since fallen back, closing
Tuesday at $17.56. The question among the shorts: Who would buy it?
Don't look to the movie theater industry, which would've been a natural
buyer. So far, in recent months United Artists Theater Co., Carmike
Cinemas (CKE:NYSE) and Edwards Cinemas are among the big names that
have filed for bankruptcy.
Rumors of a similar fate have been rumbling around Regal Cinemas, the
nation's largest chain, as well as AMC Entertainment, GC Companies
(GC:NYSE), parent of General Cinema Theaters, and possibly Loews
(LCP:NYSE). Imax officials couldn't be reached, and the company has
said that it will make further comments regarding the sale of itself in
the fall.
OK, it's fall!
o Speaking of the movies -- this just in from one reader who operates
a chain of theaters; it's a must read: "I cannot recall another
industry where nearly every major player has sought bankruptcy
protection, and in such a short space of time. In fact, the remarkable
thing about this tale is the rapidity with which the industry has
imploded. Remember (and this is one of the things that makes the story
a cautionary one for the economy at large), just 2 1/2 years ago this
business was the darling of the so-called smart guys. KKR, Hicks-Muse,
Warburg-Pincus , et al., all sank serious money into the theater
business. Yet within two years, every penny of their investment had
evaporated.
"There were two options for theater owners in the '90s: either you
tapped the capital markets for a pile of dough and went out and
expanded, or you sat by and watched others shred your market. Expansion
became, as it does in these circumstances, an infectious disease.
Theaters cannabalized theaters with new stadium-seating megaplexes that
themselves were too expensive to generate a meaningful return.
Meanwhile, the debt piled up until it took nothing more than a so-so
year at the box office to flush the entire industry down the drain.
"Could it happen to other industries? I wouldn't pretend to know, but
the dynamics that made for this particular disaster look awfully
commonplace: easy credit coupled with a view of ever-expanding
horizons. But then I'll leave that determination to you."
Well, at least we got stadium seating out of it!
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's
editorial policy, he doesn't own or short individual stocks, though he
owns stock in TheStreet.com. He also doesn't invest in hedge funds or
other private investment partnerships. He welcomes your feedback and
invites you to send any to Herb Greenberg. Greenberg also writes a
monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
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