Carmike Cinemas Inc. (NDAQ:CKEC) revealed today that Watershed Asset Management had increased its stake in the company to 6.7% and nominated one of its own to the company's Board of Directors. Watershed has had an investment-only interest in the company for a long time. Back in October 2005, the fund made several recommendations to the Board in a letter attached to a
13D/A filing with the SEC:
- Eliminate growth capital expenditures
- Seek amendments to your bank documents and bond indentures to increase restricted payments flexibility
- Buy back stock with excess cash; if consent from bondholders can not be secured, buy back bonds at a discount
- Increase your dividend
- Begin evaluating options to extract value from your real estate portfolio
- Communicate your new free cash flow strategy
The fund summarized:
"In summary, we believe that,despite the troubles that Carmike has experienced over the last three quarters, the compan has a number of practicalmopportunities to improve its return to investors. Moreover, with a rebound in box office performance to 2003 or 2004 levels, Carmike's EBITDA, adjusted for the GKC acquisition, could be $115 million or more. Free cash flow available for shareholders could exceed $60 million. With discipline on capital expenses and a commitment to deploy cash with a view to enhancing shareholder value, Carmike's shares would trade dramatically higher."
Since then, the stock has dropped further from a high of $35 to its current levels of $17 per share. Watershed is likely attempting to remedy the situation by electing its own member to the Board in an effort to further influence these changes within the company. In an
8K filing with the SEC yesterday, the Board announced that its current Director - James J. Gaffney - would not be running for re-election, and the company would recommend Watershed's Kevin D. Katari to shareholders. This Board spot will enable Watershed to help the company execute its plan to enhance shareholder value, and ultimately increase the stock price. This makes CKEC a stock
definitely worth watching during the next few months.
Related CompaniesRegal Entertainment Group (RGC)The Marcus Corporation (MCS)