The Loews E-Walk on 42nd Street near Times Square, one of the highest-grossing movie theaters in the country, must vacate its premises if its parent company wants to complete a multibillion-dollar merger with AMC, the Department of Justice recently announced.
The department is asking Loews to divest of the theater and nine others nationwide to gain approval for its merger, which was first announced last summer. Justice says the merger would give Loews and AMC an 88% market share of movie theaters in Midtown Manhattan, leading to a rise in ticket prices.
The E-Walk is directly across the street from the AMC Empire 25, the highest-grossing movie theater in the country, according to Variety. Combined, the company would own a total of 11 theaters in New York.
The 13-screen E-Walk, short for entertainment walk, is part of a larger mall-like complex of shops and restaurants owned by Tishman Real Estate, in the heart of New York's tourist district. Built in November 1999 on the site of a former adult theater, the E-Walk is now a brightly lit symbol of the new Times Square.
There is some confusion among the parties over what divesting of the property will entail.
A spokeswoman for AMC, Melanie Green, said in an e-mail that the E-Walk would be sold by its agent, Bear Stearns, likely in the next several months. Ms. Green would not comment on a possible sale price or potential buyers, although she said it could be a competitor.
But a spokesman for Tishman, Richard Kielar, said the theater is owned by Tishman and is leased for the long term to Loews. Mr. Kielar said Loews is obligated to pay the remaining rent on its lease, and that if it does not, legal action will be possible.
Either way, finding another owner or tenant could be complicated by the Justice Department's requirements.
Court documents filed by the department indicate that the new "acquirer" of the E-Walk 13 will have to have the "intent and capability" of competing effectively in the business of firstrun, commercial movie theaters.
Likely interested parties include Regal, the owner of the most screens nationwide, and Clearview, which is owned by Cablevision. Both companies have theaters in Manhattan but not near Times Square. A spokeswoman for Clearview declined to comment. A spokesman for Regal did not return several messages.
Other national companies with a weaker New York presence, such as Carmike, National Amusements, or CineMark, may also be interested, according to industry analysts.
A lawyer for the firm Paul, Weiss, Rifkind, Wharton & Garrison and a former director at the Federal Trade Commission, Joseph Simons, said that in cases where the Justice Department requires a divestiture, real estate bargains are common.
"Oftentimes what happens when you have to sell a property according to a government order of divesture, you get the best price. Oftentimes they are viewed as fire sales," Mr. Simons said.
A media analyst who follows New York theaters, Dennis McAlpine, said the E-Walk vacancy is further complicated by movie industry rules that prevent theaters in the same district from showing the same films at the same time. The future owner of EWalk and AMC 25 across the street will have to fill slots for 38 films. Mr. McAlpine said this could prevent operators from showing the biggest hits and lower the value further.
Mr. McAlpine said theaters generally sell for six or seven times their cash flow, which in this case would be in the tens of millions of dollars.
The New York City movie theater business has undergone consolidation in recent years, with many independent and smaller theaters closing to make way for megaplexes near the city's busiest intersections.
In 1998, when Loews bought Cineplex Odeon, the company similarly was forced to sell 14 theaters in Manhattan, mostly smaller theaters that disappeared from the map.
Karen Cooper, the director of Film Forum, an independent, nonprofit cinema in the West Village, said it is part of a disturbing national trend.
"The little guys are eaten up by the medium-sized ones," she said. "The medium-sized ones are eaten up by the big guys. And then the big guys merge. Our lives have become more homogenous and less interesting, less exciting.
"It affects New Yorkers less than the suburbs, who are just stuck with a chain multiplex that looks only at the bottom line," she said.