Regal Cinemas Is in Talks for Merger With U.K.'s Cineworld

Updated on
  • International merger would create bigger rival to leader AMC
  • Possible $23-a-share bid too low, Loop Capital analyst says
Photographer: Patrick T. Fallon/Bloomberg

U.K.’s Cineworld Group Plc is in talks to purchase Regal Entertainment Group, the U.S. movie-theater chain controlled by billionaire Philip Anschutz, for about $3.6 billion to tap into the world’s largest market and create a bigger rival to industry leader AMC Entertainment Holdings Inc.

Negotiations concerning a price for Regal of $23 a share may still fall apart, the companies said in separate statements, confirming reports Tuesday by Reuters and Bloomberg. Cineworld declined as much as 17 percent, the most in a decade, after saying it would fund the acquisition with a stock sale and debt. Regal gained as much as 7 percent.

Acquiring Regal would let Cineworld expand beyond its home market, as Britain’s plan to leave the European Union weighs on consumer spending, and add thousands of screens as online-video providers like Netflix Inc. give audiences more reasons to stay home. A deal to reshape Regal, the second-biggest cinema chain in the U.S., revives an unsuccessful attempt to sell the company in 2014.

“It’s probably useful to be bigger in the industry now when everyone’s concerned about video on demand, Netflix and the shortening of exclusivity periods for cinemas,” said Owen Shirley, an analyst at Berenberg in London. “If you’re a bigger player, you’ve got more negotiating power with the Hollywood studios.”

Stagnant Summer

Regal and fellow U.S. theater chains are under pressure as movie attendance has stagnated and many films this year have failed to meet expectations at the box office. The summer season -- usually the most lucrative for the industry -- was the worst since 2006.

Knoxville, Tennessee-based Regal had been valued at $2.83 billion based on trading early Tuesday, while Cineworld had a market capitalization of 1.6 billion pounds ($2.15 billion). Shares of Regal surged as much as 17 percent Tuesday before being halted, and were up 5 percent to $20.61 at 9:53 a.m. Wednesday in New York.
Cineworld plunged 17 percent to 575 pence in London.

“We believe $23/share will probably not cut it with RGC’s board, and it would not surprise us to see a revised offer,” David Miller, an analyst at Loop Capital Markets, said in a note.

Reverse Takeover

Cineworld’s shareholder Global City Holdings, which has a 28 percent stake, has committed to subscribe to the equity increase. The purchase of Regal would be classified as a reverse takeover, and a deal would require Cineworld shareholder approval, the company said.

Execution risk is probably playing into Cineworld’s Wednesday share slide, as shareholders await clarity on the benefits of the deal and how the company can squeeze value from the purchase, as well as how much equity they will raise, Shirley said. Investors may also be wary of jumping into a U.S. market that’s been weak, he said.

Cineworld, with 2,136 screens, bought Polish Cinema City International for about 500 million pounds in 2014 and acquired small, more highbrow U.K. chain Picturehouse for 47 million pounds in 2012.

AMC has grown with two major acquisitions, first Carmike Cinemas in the U.S., and Odeon & UCI Cinemas as well as Nordic Cinema Group in Europe. The company is considering an initial public offering of its European cinema operations that could help reduce its $4.29 billion in borrowings.

Opportunity Sensed

Regal and Cineworld could “sense an opportunity to assume the role of theater consolidator now that AMC is on the sidelines with an over-leveraged balance sheet,” Bloomberg Intelligence analyst Paul Sweeney said.

Regal, with 7,379 screens, had hired Morgan Stanley three years ago to evaluate options, then announced in early 2015 it wouldn’t try to find a buyer. The company has an enterprise value of $5.35 billion, according to data compiled by Bloomberg.

Regal has expanded its market share this year by buying smaller chains, including two Santikos theaters in Houston and seven Warren Theaters.

European chains have been drawing attention from foreign buyers, with South Korea’s CJ CGV Co. saying earlier this month it may bid for U.K. group Vue International.

— With assistance by Scott Soshnick, Aaron Kirchfeld, Thomas Seal, and Joshua Fineman

    Quotes from this Article
    Before it's here, it's on the Bloomberg Terminal.