Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Divestitures Resolve U.S., Texas Concerns over Movie Theater Combination, (May 20, 2013)

By Jeffrey May, J.D.

Movie theater operator Cinemark Holdings Inc. has agreed to divest theaters in Kentucky, New Jersey, and Texas, in order to resolve federal and state competition concerns over its proposed $220 million acquisition of Rave Cinemas movie theaters. Cinemark’s chairman also agreed to divest Movie Tavern, Inc. as part of the settlement. The U.S. Department of Justice Antitrust Division and the State of Texas filed a complaint and proposed consent decree in the federal district court in Washington, D.C. today. If approved by the federal district court, the proposed consent decree would resolve the challenge to the transaction.

According to the Justice Department's announcement, the proposed acquisition would likely reduce price competition among Cinemark, Rave Cinemas, and Movie Tavern in parts of Kentucky, New Jersey, and Texas. Cinemark, one of the nation’s largest theater operators, owns and operates 298 theaters with a total of 3,916 screens in 39 states. Rave Cinemas owns and operates 35 movie theaters with a total of 518 screens in 12 states. Movie Tavern, which offers in-cinema dining, is owned by Alder Wood Partners L.P., a Dallas-based limited partnership controlled by Cinemark’s chairman, Lee Roy Mitchell, and his wife.

Cinemark and Rave Cinemas are each other’s most significant competitor in the area in and around Voorhees-Somerdale, New Jersey, and in the eastern portion of Louisville, Kentucky. The Justice Department also contends that Dallas-based Movie Tavern competes directly with Rave Cinemas in the western portion of Fort Worth, Texas, and that in and around Denton, Texas, all three companies currently operate theaters. In markets in which Movie Tavern and Rave Cinemas compete, the Justice Department said that Mitchell would have an ability and financial incentive to dampen competition once Rave Cinemas was acquired by Cinemark.

Under the terms of the proposed consent decree, Cinemark would be required to divest three movie theaters in the locations where Cinemark and Rave Cinemas are currently each other’s closest competitor in Kentucky, New Jersey, and Texas. In addition, Mitchell would be required to divest Movie Tavern Inc. and its 16 theaters in seven states.

“Cinemark’s proposed acquisition of Rave Cinemas would likely reduce competition among theaters showing first-run, commercial movies in the affected areas of Kentucky, New Jersey and Texas, causing moviegoers to pay higher ticket prices,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice Antitrust Division. “The divestitures required by the department and the state of Texas will ensure that competition among movie theaters in the affected areas is preserved.”

Companies: Cinemark Holdings Inc.; Movie Tavern, Inc.; Rave Holdings LLC

News: Antitrust AntitrustDivisionNews