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Instructions

You will need to review the two articles below. Then answer the question.

Article 1: Adapted from "Struggling Cinemas Go Luxe to Survive --- Theaters add giant recliners and fine dining to lure movie fans from Netflix and the couch" By Erich Schwartzel 10 April 2018 The Wall Street Journal

The past and future of moviegoing can be found within one Madison, Wis., highway exit. The abandoned Eastgate Theatre, a 16-screen multiplex where teenagers once lined up on opening night, represents the industry's struggles. Today, there is an empty Pepsi cup stuck in a dead tree outside and a neighboring Mazda dealership uses the parking lot to store new cars. Three miles away, the new Palace Cinema of Sun Prairie features 14 auditoriums equipped with recliners wider than La-Z-Boys, large-format screens and a restaurant that serves entrees such as pesto primavera pasta during movies. The Eastgate squeezed patrons into seats measuring 22 inches across; the Palace has loveseat-style seats close to 5 feet wide.

Theater attendance last year fell to its lowest level since 1995, a crisis propelled by the rise of streaming. That is spurring the industry's biggest changes since the multiplex building boom of the 1990s, when suburban sprawl and a cash-rich Hollywood erected cavernous auditoriums in every kind of neighborhood. Today, exhibitors are tearing out seats and replacing them with luxury recliners -- fitting fewer overall seats, but creating steadier revenue at higher prices. They're adding high-end drinks and dining options, and sophisticated sound and screens that no home theater could replicate. Special attractions such as virtual-reality sections and child-friendly play areas are extras to entice people to leave their living rooms. "There's the face of what theaters were at one time," said Rolando B. Rodriguez, the chief executive of Milwaukee-based Marcus Theatres, gesturing toward Eastgate. "If you're building a product for the next 20 years, you need to either renovate it or you build new." Marcus, the nation's fourth-largest circuit, closed the Eastgate location in 2015 and opened the Palace.

Movie theaters need to lure customers who have plenty of options to watch at home, and increasingly need a special reason to come out -- a big-screen blockbuster or a date-night occasion. Big-budget productions are available on Netflix Inc., and studios continue to shorten the amount of time a movie stays in theaters before becoming available at home, which threatens to push numbers down even more. The nation's three largest movie chains -- AMC Entertainment Holdings Inc., Regal Entertainment Group and Cinemark Holdings Inc. -- have each dedicated hundreds of millions of dollars to the reseating efforts, saying between 40% and 55% of their auditoriums will be eventually renovated. AMC, the world's largest exhibitor, said 247 of its 640 locations were outfitted with recliner seats at the end of last year. AMC has reported increased attendance in renovated theaters, especially for weekday screenings that used to play to empty houses. Regal, which has focused on offering more-profitable food and alcohol options, reported in January that while 2017 box-office revenue fell 2.6%, sales of concessions slipped only 0.3% -- a sign that adding chicken panini sandwiches and Stella Artois beer to some locations was working. Investors wonder if consumers will ever return to the movies in the same numbers they once did. People have access to deep libraries of entertainment through Netflix, which plans to spend $8 billion on original content in 2018 and has indicated it doesn't view theatrical release as a necessary part of making movies. Other streaming services are gaining popularity, and quality scripted television offers more competition for entertainment hours.

Ron Horton, former chief executive of Kansas-based Dickinson Theatres, sold his 169-screen circuit in 2014 after calculating it would cost about $50 million to renovate his 15 locations and keep up with the trends. "It was an expense I wasn't willing to do," he said. Dickinson was sold to B&B Theatres, a larger regional chain that has closed underperforming locations and put recliners and fancier food options in more successful auditoriums. Studio Movie Grill, with 30 locations in nine states, is buying dying multiplexes or big-box locations left behind by bankrupt chains such as Circuit City and Sports Authority and retrofitting them with movie screens, in-theater dining and full-service bars. "You break it down to the studs," said Brian Schultz, the chief executive. "The Toys 'R' Us closures have us super busy right now." In locales such as Monrovia, Calif., near Los Angeles, where Studio Movie Grill retrofitted an older movie house, "People are staying for hours," he said. Since the newer auditoriums have higher ticket prices and pricier food and drink options, the trend began in affluent neighborhoods but has since migrated to smaller communities where moviegoers treat the outing as a luxury. "You might not be able to go to the Bahamas, but it's a staycation," Mr. Schultz said. Regal was acquired by U.K. operator Cineworld Group PLC in December for $3.6 billion. Former No. 4 chain Carmike Cinemas Inc., sold itself to AMC after seeing its market share fall any time a splashier theater opened nearby.

VIP Cinema Seating, a New Albany, Miss.-based company, now controls 80% of the market for theater recliners in the U.S. Co-founder Stephen Simons started the company in 2008 after walking the show floor at an exhibitor convention with a friend and noticing that there were few options for auditorium seats. "The U.S. market knew nothing of the premium seat," and recliners were reserved for specialevent sections of auditoriums, he said. The company started with 25 employees working in a 40,000-square-foot facility. Today it has 550 workers in a 600,000-square-foot space, and has plans this year for a second headquarters in the U.K. and a 150,000-square-foot manufacturing facility in Eastern Europe. The company has installed more than 600,000 recliners around the world in the past decade, at a cost of $600 to $900 per single seat. Annual revenue hit $130 million last year, up from $48 million in 2014, Mr. Simons said, forecasting higher revenue in 2018. Creating the company "was my 17th midlife crisis, so I just gave it a shot," said Mr. Simons. "As luck would have it, we were prepared to handle" the demand.

In the 1990s, U.S. theater chains built sprawling multiplexes in response to increased competition from VHS rental stores such as Blockbuster. The number of screens ballooned to more than 36,000 from 25,000. The AMC Grand 24 opened in 1995 in northwest Dallas, a 24-screen, 85,000-square-foot colossus with stadium seating that was once the biggest theater in the country. Moviegoers drove three hours to visit. The layout reinvigorated the industry, and multiplexes with one or two dozen screens sprang up across the suburbs. In many cases, securing a multiplex as an anchor tenant enabled developers to build an entire mall. But overbuilding quickly led to a bust. A wave of bankruptcies hit around 2001, and amid consolidation AMC, Regal and Cinemark emerged as the three biggest chains. The financial crisis in 2008 froze financing for new malls and shopping plazas that would house new theaters. "Our approach used to be, add new and take away the underperforming," said Mark McDonald, AMC's executive vice president of global development. "The real-estate crisis told us we need to do more with the real estate we have."

In early 2011, AMC decided to try out a concept it had seen in some European chains. It added plush recliners into four of the 12 auditoriums at the AMC Lakewood Mall theater outside Tacoma, Wash., reducing capacity in each by two-thirds. The reconfigured auditoriums operated alongside unrenovated ones, as a controlled experiment. Ticket prices initially remained the same. AMC noticed that some customers were deciding what to see based on which auditorium it was playing in, rather than the movie itself. Ticket sales rose for weeknight showings, a typically dead time for most theaters. A traditional movie theater sees attendance decline 1% or 2% a year as the facility ages, Mr. McDonald said. Attendance overall at Lakewood doubled within 18 months of all auditoriums getting the recliners. In 2014, AMC said it would take the reseating strategy nationwide and spend $600 million to revamp 1,800 auditoriums, about a third of its total at the time, backed by its new majority shareholder, China's Dalian Wanda Group Corp.

Many of the multiplexes built in the late 1990s were operating with 15-year leases that came up for renewal as the renovation trend was taking off. Exhibitors cited the success of redone auditoriums in negotiations with landlords, exhibitor and real-estate executives said. At Regal, executives held meetings they called "catch-up" sessions to discuss how to replicate AMC's model, according to a former Regal executive. AMC is now exporting the design to London-based Odeon & UCI Cinemas, the theater company with about 2,200 screens across Europe it bought in 2016. (The U.S.'s busiest theaters, such as those found in New York's Times Square or Los Angeles, are unlikely to ever get the luxury-recliner treatment since they regularly sell out hundreds of seats.)

Article 2: Adapted from "Investors bash United Technologies' plan to split in three following a year-long antitrust battle" By Aaron Gregg November 27, 2018 Washington Post

Global manufacturing conglomerate United Technologies will split into three companies and has received regulatory sign-offs for its $23 billion merger with jet engine manufacturer Rockwell Collins, the company announced Monday after markets closed. The spin-off will create three companies built around specific product areas: Carrier, an Indiana-based air conditioner and refrigerator manufacturer; Otis, which will focus on industrial systems including elevators and moving walkways; and a new United Technologies business that consists of the combined assets of jet engine manufacturers Pratt & Whitney and Collins Aerospace... Analysts described the split as part of a broader shift away from the old-style empire-building approach that produced the giant multi-industry conglomerates in the 1960's and '70's. Throughout its 84-year history United Technologies has amassed a broad portfolio of assets up and down the U.S. industrial and military supply chains. Today there's a push toward more focused operations that can dominate particular industries. "I think we all recognize the fact that focused businesses tend to do better," Hayes [CEO] told analysts.

Answer the following question:

Question 3. You are part of investor group that has hired a consulting firm to explain why it makes sense to breakup United Technologies into three separate companies and how the merger with Rockwell Collins can create value. What explanations and arguments would you want to hear from the consulting firm on the breakup of United Technologies and merger with Rockwell Collins? (see article - Adapted from "Investors bash United Technologies' plan to split in three following a year-long antitrust battle")