FIRMS TO BUY REGAL CINEMA; HICKS MUSE, KKR TO PAY $1.5 BILLION IN DEAL.

Byline: Karen Fessler Bloomberg News

Hicks, Muse, Tate & Furst Inc. and Kohlberg Kravis Roberts & Co. agreed to buy Regal Cinemas Inc. for $1.5 billion and combine their other theater chains, creating the world's largest operator of movie theaters.

The investment firms will purchase Regal for $31 a share, or $1.2 billion in cash, and take on $290 million in debt. Regal will be folded into KKR's Act III Cinemas and Hicks Muse's United Artists Theatre Group, together valued at $1.5 billion.

It's the first time the rival takeover firms have joined for an investment.

The new company will be twice as big as industry leader Carmike Cinemas Inc. in number of screens. The buyout firms, which had been bidding against each other for chains, will be able to use their combined clout to make even more purchases in the fast-consolidating industry.

``It makes sense to combine what you have and place your bets on the same horse,'' said Scott Barry, an analyst at Raymond James & Associates.

Regal fell 13/16 to 29 7/16 in trading of 11.3 million shares, 22 times the three-month daily average. Shares of the Knoxville, Tenn.-based company had risen 8.5 percent this year on reports it would be bought.

``The market was expecting a higher price,'' said Marina Jacobson, an analyst at Bear, Stearns & Co.

Dallas-based Hicks Muse and New York-based KKR, two of the largest buyout firms, will each own 45 percent of the combined company. The rest will be owned by management and investors. The company, which hasn't been named, will have $1.7 billion in debt.

While the company's focus won't be on making more acquisitions in the near future, it will consider opportunities that emerge, said Clifton Robbins, KKR's general partner.

``Regal, United Artists and Act III have always been aggressive and will be looking opportunistically,'' he said.

The combined chain will have 5,347 screens in 727 theaters in 35 states, giving it about 17 percent of the nation's screens.

The company will be led by Michale Campbell, Regal chairman and chief executive, and a management team that likely will include senior executives from all three theater chains.

Hicks Muse and KKR each will contribute about $600 million of equity in the transaction.

KKR bought producer Norman Lear's Act III chain for $660 million last month. Hicks Muse in November agreed to buy United Artists for about $850 million.

The next buyout target could be AMC Entertainment Inc., Ursaner said. The chain is considered the best operator of large theater complexes and a joint venture with Planet Hollywood International Inc. makes it especially attractive.

The industry, which has been consolidating for some time, still has a ways to go. There are about 350 owners in the U.S.

The top 12 theater operators now control about 61 percent of the screens in the U.S. - up from 25 percent 12 years ago, said Paul Marsh, an analyst at Cowen & Co.