Regal Entertainment Group
Regal Entertainment Group
9110 East Nichols Avenue, Suite 200
Englewood, Colorado 80112
Telephone: (303) 792-3600
Fax: (303) 792-8221
Web site: http://www.regalcinemas.com
Sales: $2.14 billion (2002)
Stock Exchanges: New York
Ticker Symbol: RGC
NAIC: 512131 Motion Picture Theaters, Except Drive-In
Regal Entertainment Group is the largest movie theater chain in the world. The company operates 6,119 screens in 562 theaters in 39 states, controlling roughly 16 percent of all of the screens in the United States. Nearly twice as big as it closest rival, Regal Entertainment is controlled by Philip Anschutz, a highly successful businessman who is estimated to be one of the five wealthiest individuals in the world.
Regal Entertainment was created from the ashes of three broken-down companies, which were merged in 2002 to create the world's largest chain of movie theaters. Although two of the three merged companies were veteran concerns, each operating for more than a half-century before their financial collapse, the story of Regal Entertainment's formation drew its plot from the life of the individual who orchestrated the 2002 merger. The figure behind the scenes was Philip F. Anschutz, reputed to be one of the five wealthiest individuals in the world. Anschutz represented a rare breed of business tycoon, a man able to cultivate a vast fortune in not only one business, but in an impressive spectrum of businesses. His success in one industry was parlayed into success in another industry, with Anschutz proving himself to be a shrewd, patient, and opportunistic businessperson. Anschutz built a vast and diverse business empire, one that eventually set its sights on the motion picture exhibition industry and pounced, adding the largest chain of movie theaters as the new jewel of Anschutz's holdings. Regal Entertainment began as a $2 billion company, but the resources and business acumen needed for its creation were developed throughout Anschutz's career.
Philip Anschutz was born in Russell, Kansas. After moving to Hays, Kansas, his family settled in Wichita, where Anschutz attended high school and where his father operated an oil exploration business named Circle A Drilling. Anschutz earned a finance degree in 1961 from the University of Kansas and prepared for a career in law, but just before he was scheduled to attend law school at the University of Virginia he balked. He decided to join his father's oil company instead and spent the next four years drilling, buying and selling oil leases, and over-seeing seismic tests. After a four-year stint with his father, Anschutz decided to start his own oil business. During the next ten years, Anschutz acquired oil fields in Montana, Texas, Colorado, and Wyoming, a period in which he displayed his skill at overcoming major obstacles and emerging victorious.
Anschutz's first foray into the entrepreneurial world nearly met with disaster. In 1967, not long after leaving his father's company, Anschutz received a telephone call informing him one of his exploratory wells had exploded. He chartered a plane to the site, located in Gillette, Wyoming, to check on the damage. Standing ankle-deep in crude oil, with natural gas permeating the air, Anschutz saw the crisis firsthand and ordered that the well be capped. He also sensed that he was standing atop substantial stores of crude oil and natural gas. Before others learned of his gushing well, Anschutz purchased several oil leases in the surrounding region. Strapped for cash, he purchased the leases on 30 days' credit, then returned to Denver thinking that the problem had been resolved. When he turned on the television back at home in Denver the next day, Anschutz heard disturbing news. A massive oil fire was raging in Gillette, Wyoming. He flew back to Gillette, where the devastation on display spelled his ruin. The cost of fighting the fire and the impending payment for the leases he had acquired the day before promised to force Anschutz into bankruptcy. His predicament was grave, but Anschutz rallied. He learned that Universal Studios was making a film based on famed oil-field fighter Red Adair, presumably from Adair himself, who had agreed to snuff the flames in Gillette. Anschutz reached an agreement with Universal Studios that let the film studio film on his land in exchange for a $100,000 fee. The footage was used in the 1968 film Hellfighters, starring John Wayne.
Anschutz continued to invest in the oil business throughout the 1970s and into the 1980s. He also demonstrated his penchant for diversifying his business interests—"Phil had a philosophy that you had to have a lot going on, because not all things would work out," a colleague noted in a September 6, 1999 interview with Fortune. Anschutz purchased uranium and coal mines, he bought cattle ranches and vegetable farms, and he founded an oil and metals commodity trading company. Meanwhile, his oil exploration business experienced its vicissitudes. At one point, he drilled 30 dry holes in a row. Eventually, however, his persistence paid off. He purchased a farm in northern Utah in an area already explored by oil companies. Anschutz purchased the property anyway because during the late 1970s new seismic technology had been developed that offered hope of discovering oil. Anschutz took a look where others had already explored and discovered a billion-barrel pocket of oil one mile down, a find that ranked as one of the largest U.S. oil discoveries since Prudhoe Bay in Alaska in 1968. In 1982, just before oil prices collapsed, Anschutz sold half his stake in the northern Utah field to Mobil Oil, gaining $500 million from the sale.
The sale to Mobil made Anschutz immensely wealthy, giving him the financial might to pursue other business interests. "He wanted to get away from too much oil and gas," a business associate explained in a September 6, 1999 article in Fortune. "He wanted to do some wheeling and dealing," the colleague added. Anschutz opted for railroads, acquiring Denver & Rio Grande Western railroad in 1984. Not long after acquiring the midsized railroad, he learned of a proposed merger between two nearby railroads that threatened the future of his newly acquired railroad. When federal government regulators ordered that one of the two railroads be sold, Anschutz swooped in, acquiring San Francisco-based Southern Pacific. He merged Southern Pacific and Denver & Rio Grande, eventually selling the line to Union Pacific Corp. for $5.4 billion, which netted more than $1 billion on his initial outlay.
Anschutz's involvement in the railroad business facilitated his next great investment, an impressive foray into telecommunications. Southern Pacific, which remained with Anschutz until 1996, had a small division named SP Telecom that installed fiber optic cable along its track for itself and other telephone companies. Under Anschutz's directions, SP Telecom was given access to an unprecedented amount of capital, money that would be used to lay specially switched networks of large capacity. Anschutz envisioned the need for packet switching, which carried digital data with far greater efficiency than conventional networks. In 1995, a year before selling Southern Pacific, Anschutz separated SP Telecom from the railroad and merged it with another company, a Dallas-based digital micro-wave company named Qwest, acquired by Anschutz in 1995. He merged the two companies to form Qwest Communications. Qwest, after installing 18,500 miles of fiber through 150 cities, developed into a leader in the telecommunications industry. When Qwest merged with U.S. West in 2000, the transaction increased Anschutz's net worth to an estimated $16.5 billion.
Anschutz used his considerable wealth to invest in a number of different directions. During the mid-1990s, he invested in Major League Soccer (MLS), purchasing four MLS franchises. He became a majority owner of the Staples Center in Los Angeles. He also purchased substantial stakes in the facility's occupants, taking on large interests in professional sports teams such as the National Basketball Association's Los Angeles Lakers and the National Hockey League's Los Angeles Kings. During the late 1990s, Anschutz's acquisitive eye also turned to the movie theater industry, his interest piqued by the impending collapse of a host of the industry's major operators.
2001: The Formation of Regal Entertainment
During the late 1990s, the business of operating a chain of movie theaters was fraught with difficulty. To stay ahead of competitors, major chains were borrowing heavily to expand and upgrade their operations. Movie theater chains were expanding at a rapid rate, hoping to drive one another out of business by erecting more screens and designing grander facilities than any other operator. The frenzied trend toward expansion led to over-capacity. Soon, there were not enough patrons to fill the hundreds of thousands of new stadium-style seats that were in existence. Saddled with high-interest payments on the debt accumulated during the expansion spree, the chains became financially distressed. Financial failure replaced frenzied expansion as the new industry trend, resulting in an alarming number of bankruptcies. In 2001 alone, six movie theater chains declared bankruptcy. Of those six, there were three companies that attracted Anschutz's attention: Regal Cinemas Inc., United Artists Theatre Company, and Edwards Theatres Circuit Inc. Combined, the three operators had invested approximately $1.9 billion in expansion and upgrades during the last several years of the 1990s. By the beginning of the 21st century, the companies were financially exhausted from the race to drive out competitors.
We intend to selectively pursue theatre and screen expansion opportunities that meet our strategic and financial return criteria. We also intend to enhance our operations by selectively expanding and upgrading existing properties in prime locations. We have combined the capital spending programs of Regal Cinemas, United Artists and Edwards under one management team to maximize our return on investment by enabling us to make strategic capital expenditures that we believe will provide the highest returns among our theatre portfolio.
Anschutz orchestrated his three-pronged attack on the movie theater industry in 2001, negotiating, at roughly the same time, the three deals that would lead to Regal Entertainment's formation. He completed his first deal in January 2001, when he acquired a majority stake in United Artists, which was two months away from finishing its bankruptcy proceedings. Founded in 1926 by shareholders that included Mary Pickford, Douglas Fairbanks, and Sam Goldwyn, United Artists operated 205 theaters housing 1,573 screens. Anschutz acquired United Artists on his own; his next acquisition saw him partner with Oaktree Capital Management, a distressed-debt specialist. The two parties began negotiations to acquire Edwards Theatres, the smallest of the three companies that would form Regal Entertainment. A family-owned business in operation for more than 70 years, Edwards Theatres ranked as the largest movie theater chain in California, controlling 59 theaters with 690 screens. By mid-2001, Anschutz and Oaktree had agreed to pay $56 million to take control of Edwards Theatres, which emerged from bankruptcy in September 2001. Meanwhile, Anschutz was in the midst of negotiations to purchase the largest of his acquisition targets, Knoxville, Tennessee-based Regal Cinemas.
Regal Cinemas ranked as the largest movie theater chain in the United States at the time of Anschutz's interest. The company began as a private concern in 1989 before converting to public ownership in 1993. In 1998, the company was taken private again in a $1.05 billion leveraged buyout led by Kohlberg, Kravis, Roberts & Co. and Hicks, Muse, Tate & Furst. Regal Cinemas, like a number of movie theater chains, fell victim to the financial strains of overexpansion, slipped into bankruptcy, and left its joint venture owners with little hope of making a profit on their 1998 investment. In September 2001, Regal Cinemas' management endorsed a $1.25 billion reorganization proposal that gave Anschutz control over the nation's largest movie theater chain. Regal operated 304 theaters housing 3,898 screens.
Regal Entertainment's 2002 Public Debut
Anschutz combined the three companies to form Regal Entertainment, a company led by co-chief executive officers and vice-chairmen Michael Hall, the former head of Regal Cinemas, and Kurt Hall, president of United Artists. Anschutz served as non-executive chairman of Regal Entertainment. Because of the reorganizations each of the three components of Regal Entertainment were forced to undergo, the assets supporting the three entities were in better shape than before filing for Chapter 11 protection. During the process of reorganization, the movie theater chains were able to extricate themselves from bad leases and to shed underperforming locations. The process created leaner, stronger companies whose union resulted in by far the largest movie theater chain in the world. Regal Entertainment, as it started out, operated 561 theaters and 5,885 screens located in 36 states. The company was nearly twice as large as its closest competitor, Kansas City, Missouri-based AMC Entertainment.
Anschutz aspired not only to own the nation's largest chain, but also to leverage his market dominance for what he termed "high-margin ancillary businesses such as advertising," according to Securities and Exchange Commission documents filed by the company. Anschutz planned to use his myriad screens to create a digitally wired network that could display an unprecedented amount of advertising. "Research," Kurt Hall said in a June 10, 2002 interview with Forbes, "shows lots of people are in their seats 15 minutes or so before the show. We can maximize the value of those spaces." In addition to his position as Regal Entertainment's co-chief executive officer, Hall also headed Regal CineMedia, the entity through which Anschutz planned to deliver his vision of movie theaters as locations capable of showing more than films. Regal CineMedia began building a $70 million network, dubbed the "Digital Content Network," of more than 400 theaters, representing roughly 4,900 screens, that were capable of receiving, storing, and digitally projecting alternative content. The content ranged from advertising, to live MLS games, to corporate presentations displayed to workers gathered in one of Anschutz's movie theaters.
Anschutz filed for Regal Entertainment's initial public offering (IPO) of stock in March 2002. In May 2002, the company completed its IPO, beating the expected offering price of between $16 and $18 per share. Investors purchased 18 million shares at $19 apiece.
As Regal Entertainment prepared for its future, the company stood as a powerful tool for Anschutz to enact his vision. Completion of the Digital Content Network was expected in March 2004, an entity that one analyst predicted would generate between $90 million and $100 million in annual advertising revenue. The idea of using movie theaters as more than spaces to project films promised to add to the already considerable might of Regal Entertainment. The company dominated its industry and it was supported by a veteran visionary whose business skill was legendary. With Anschutz at the helm, there were few observers who could question the future success of Regal Entertainment, a genuine industry behemoth.
- United Artists is founded.
- Edwards Theatres opens for business.
- Regal Cinemas is founded.
- Regal Cinemas, Edwards Theatres, and United Artists file for bankruptcy; Philip Anschutz acquires a majority stake in United Artists in January; Anschutz and Oaktree Capital Management reach an agreement to acquire Edwards Theatres by the summer; Anschutz reaches an agreement to acquire Regal Cinemas in the fall.
- Regal Entertainment completes its initial public offering of stock in May.
Regal Entertainment Holdings, Inc.; Regal Cinemas Corporation; United Artists Theatre Company; Regal Cinemas, Inc.; Edwards Theatres, Inc.; Regal CineMedia Corporation.
AMC Entertainment Inc.; Cinemark, Inc.; Loews Cineplex Entertainment Corporation.
"Anschutz Looking at Chain," Denver Business Journal, January 12, 2001, p. 6A.
"Anschutz Taking Over Edwards," Los Angeles Business Journal, June 4, 2001, p. 29.
Carey, David, "Anschutz, Oaktree Consolidate Control of Regal Cinemas," Daily Deal, May 29, 2001, p. 34.
"Coming Distractions," Forbes, June 10, 2002, p. 50.
DiOrio, Carl, "Anschutz in Regal Spot," Variety, April 2, 2001, p. 12.
——, "Anschutz Wires Circuits," Variety, September 10, 2001, p. 3.
Harrington, Ann, "Billionaire Next Door," Fortune, September 6, 1999, p. 139.
Fugazy, Danielle, "Regal Entertainment Gets Ready for the Show," IPO Reporter, March 18, 2002.
Rebchook, John, "King of the Silver Screen Anschutz Unveils World's Largest Chain of Theaters," Rocky Mountain News, March 12, 2002, p. 1B.
Storch, Charles, "Regal Entertainment Group Looks to Alternative Content Delivered Digitally," Knight Ridder/Tribune Business News, July 1, 2003.
"Theater Chain Reprieve," Los Angeles Business Journal, May 14, 2001, p. 38.
Westergaard, Neil, "What's Anschutz Up to Now?," Denver Business Journal, March 2, 2001, p. 54A.
—Jeffrey L. Covell