Blackstone Lp

1. Were errors made in due diligence or in managing Regal? If so, what were these errors?

On the due diligence front, I think more time could have been spent trying to understand the importance concessions had to Regal's bottom line. In doing so, KKR et al could have gained a better handle on the current snack consumption trends and put in place, early on, proactive measures to balance how much the theaters depended on concession sales.

Along the same lines, there should have been more research done on the overall trends taking place within the movie industry, i.e. is the rental industry cannibalizing sales, what is the competition doing, do production companies have any blockbusters in works, etc.

2. What could the LBO firms have done differently (outside of not purchasing REGAL) to no lose all their investment?

In the end, Regal's poor financial situation seemed to come as a surprise. What I would have done different is go into the deal with the intention to make generate returns by making management/strategy changes. In doing so I would be setting myself up to gain from long-­‐term value adds, not simply trying to recoup short-­‐term returns.

3. Are movie theaters a fundamentally unsound industry for the LBO investor?

Yes. From my point of view, there are too many factors outside the control of the movie theater that dictate success. They could be case rich one day but suffer from a steak of unpopular movies and find themselves in a bad situation. In the end, their assets are primarily in the form of depreciating equipment and buildings. What they hold in land is extremely illiquid.