Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Cinema advertisers terminate merger agreement after Justice Department files suit, (Mar 17, 2015)

By Greg Hammond, J.D.

Cinema advertisers National CineMedia, Inc. (NCM) and Screenvision, LLC have agreed to terminate a merger agreement signed in May 2014. The companies concluded that the cost and distraction of the Justice Department’s suit, seeking to block the merger, could no longer be justified and that the companies would be better off pursuing their own businesses (U.S. v. National CineMedia, Inc., Case No. 14 CV 8732).

According to the Justice Department’s complaint, both NCM and Screenvision sell cinema advertising that reaches moviegoers across the United States. They both have national cinema advertising networks that cover tens of thousands of movie screens throughout the country. Specifically, the complaint alleges that NCM and Screenvision together serve 88 percent of all movie theater screens in the United States through long-term, exclusive contracts.

By eliminating competition, the merger likely would result in advertisers paying more for cinema advertising and movie theaters receiving less revenue, the complaint charged. For movie theaters, the revenue earned through pre-show advertisements provides an important source of income. Reduced advertising revenues are likely to result in movie theaters having to raise ticket or concession prices to consumers or forego theater upkeep and improvements, the Justice Department alleged.

Assistant Attorney General William Baer of the Justice Department’s Antitrust Division issued a statement following NCM’s abandonment of its proposed acquisition of Screenvision.

“Nothing harms competition more than the creation of a monopoly through merger,” said Assistant Attorney General Baer. “In recent years, NCM and Screenvision competed aggressively by offering lower prices to advertisers, a variety of attractive financial incentives to movie theaters and better products and services overall. This scheme to eliminate competition should never have been considered, much less publicly proposed. We sued to preserve the significant competition between these competitors, and with the parties’ abandonment, we achieved that result. Their decision to abandon the transaction less than a month before trial is a testament to the strength of the Antitrust Division’s case and the hard work of our talented litigation team.”

NCM has agreed to make a termination payment of $26.84 million to Screenvision. The merger agreement will be terminated upon such payment, which NCM has agreed to make within the next 10 business days.

“NCM has created a highly effective offering in the hyper-competitive video advertising marketplace through the power of our world-class entertainment content; premium video ratings; national reach; scalable, state-of-the-art content distribution technology; and integrated digital marketing products,” stated NCM’s Chairman and CEO, Kurt Hall. “While I am disappointed that our shareholders and our advertising clients and exhibitor partners will not realize the benefits of a merger with Screenvision, I remain confident in our ability to continue to innovate and build our business.”

Companies: National CineMedia, Inc.; Screenvision, LLC

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