Opinion ID: 2402127
Heading Depth: 1
Heading Rank: 4

Heading: Anschutz Theatre Holdings Consolidated

Text: In 2000 and 2001, Anschutz acquired controlling positions in three other companies in the same general business as United Artists: Regal Cinemas, Inc., Edward Theatres, Inc., and New Generation Network, Inc. Each of these companies was financially troubled and Anschutz gained his stake as part of their restructurings. Anschutz later exchanged his controlling stake in New Generation Network for 100% of the equity of Regal CineMedia, Inc. The Court of Chancery defined these entities, which Anschutz used to hold the equity positions he acquired in these transactions as the Other Theatre Companies. By 2002, Anschutz decided to consolidate the Other Theatre Companies with his holdings in United Artists and have them held by a single holding company, Regal Entertainment Group, which would become a public company with other investors. To accomplish this consolidation, Regal Entertainment, the UA Holders, the Other Theatre Companies, and certain others entered into an Exchange Agreement. United Artists was not a party to the Exchange Agreement. Under the Exchange Agreement, United Artists equity and Warrants held by the UA Holders and a key officer of United Artists (Craig Slater), as well as the United Artists management options held by certain holders, were exchanged for equity, warrants and options in Regal Entertainment at the rate of 1.1265 Regal Entertainment shares, warrants, or options for each United Artists share, Warrant, or option. The Exchange Agreement also provided for the exchange of additional United Artists equity or Warrants if the UA Holders or Slater acquired any such equity or Warrants before the Initial Public Offering (IPO) of Regal Entertainment's stock. In April and May 2002, Regal Entertainment had acquired all of the United Artists equity held by the UA Holders and Slater, thereby gaining an equity position that had been enhanced by purchases of additional equity made by the UA Holders. These purchases left Regal Entertainment owning slightly over 90% of United Artists' common stock, because the UA Holders by that time had acquired control of 8.1 million shares of United Artists' common stock and had already owned (and converted into common stock) all of the preferred stock of United Artists. In addition, Regal Entertainment had acquired all of the UA Holders' 3.75 million Warrants. The Exchange Agreement also contemplated that Regal Entertainment would exchange equity in itself for equity of the Other Theatre Companies, so that Regal Entertainment would own a controlling block in not only United Artists, but also Regal Cinemas, Regal CineMedia, and Edwards Theatres. These exchanges were also consummated by May 2002. By exchanging all of his movie theatre holdings with Regal Entertainment in return for equity in that new entity, Anschutz was able to retain a majority interest in Regal Entertainment. Therefore, as the plaintiffs state in their complaint, by virtue of his control of Regal Entertainment, Anschutz continued at all relevant times to control United Artists. The Regal Entertainment IPO proceeded contemporaneously with the transactions contemplated by the Exchange Agreement. In May 2002, 18 million Regal Entertainment shares were sold at $19 per share in the IPO. The Amended Complaint quotes the IPO prospectus as telling prospective investors that, among other things:  Our nationwide theatre circuit, comprising Regal Cinemas Corporation, United Artists Theatre Company and Edwards Theatres, Inc., operates 5,886 screens in 561 theaters in 36 states.  We believe that significant opportunities exist for us to generate economies of scale from the integration of Regal Cinemas, United Artists and Edwards Theatres. We expect to enhance our operating results through the application of best practices from across our combined company.  [A] portion of the net proceeds of this offering will be used to repay $240.6 million of outstanding senior indebtedness of United Artists....  Regal Cinemas, United Artists and Edwards Theatres operated as separate motion picture exhibitors until we acquired them....  [W]e are recording the combination of Regal Cinemas, United Artists and Edwards Theatres in accordance with the purchase method of accounting....  We have combined three independent motion picture exhibitors and Regal CineMedia into a new company.... The Court of Chancery summarized the IPO prospectus as indicating that Regal Entertainment would operate the formerly separate movie theatre businesses of United Artists, Regal Cinemas, Regal CineMedia, and Edwards Theatres as an integrated business under common management and with a shared strategic focus.