U.K. Chain Cineworld to Buy Regal in $3.6 Billion Theater DealBy and
Regal holders get $23 a share, funded with equity raise, debt
Cinema owners are merging as they battle the rise of Netflix
The $23-a-share deal comes a week after the companies confirmed news reports of takeover discussions, jolting cinema-operator stocks. The price represents a 26 percent premium to Regal’s close on Nov. 27, the day before discussions became public.
Cineworld will gain opportunities for growth outside Britain, where consumer spending is falling ahead of the country’s exit from the European Union. Movie-theater operators are consolidating to wring out costs and afford reclining chairs and expanded food-and-drink options to entice customers away from their Netflix binges at home.
“The joint group is going to create the best place to watch a movie,” Cineworld Chief Executive Officer Mooky Greidinger said in an interview Tuesday. Cinemas remain the “key drivers” of the industry, not home entertainment, he said. “The place to premier the big movies is in the cinemas.”
Shares of Cineworld fell 0.5 percent to 543.50 pence at the close of trading in London, bringing their decline this year to 3.8 percent. The stock is down nearly 22 percent since news of the talks emerged. Regal was trading 9.4 percent up at 22.69 dollars as at 12.10 pm in New York.
The company is expanding in the U.S. as the country’s theater chains are struggling with stagnating movie attendance. Many films this year have failed to meet expectations at the box office, and the summer season -- usually the most lucrative for the industry -- was the worst since 2006.
“The fact that if, in a certain year, there is a drop of 2 or 3 percent, it’s not the end of the world,” Greidinger said. Bigger movies still draw larger audiences and those who watch Netflix and Amazon at home are still likely to go to the theaters, he said.
Cineworld has been refurbishing movie theaters in the U.K., Europe and Israel to offer “top of the class” facilities, Greidinger said, including wider seats, a variety of food offerings, better sound systems and bigger screens.
The deal will give the companies $150 million a year in pretax savings and structural synergies, Cineworld estimates. Changes it’s considering include modernizing Regal’s movie theaters and ticketing systems, people familiar with the offer said last week, asking not to be identified as the deliberations were private.
Billionaire Philip Anschutz’s Anschutz Corp. has agreed to provide its written consent to back the deal, the only Regal shareholder action required to approve the transaction, Cineworld said. Cineworld is funding the deal with debt and equity sold through a rights issue of about 1.7 billion pounds ($2.3 billion).
The equity sale is set to cause “indigestion” for Cineworld shares in the short term, Peel Hunt analysts Douglas Jack and Ivor Jones said in a note to clients, lowering their rating to hold from add. “The long-term investment proposition has fundamentally changed as a result of higher debt and earnings becoming heavily dominated by mature markets,” the analysts said.
The offer follows a buying spree by AMC Entertainment Group Inc., the biggest U.S. exhibitor, whose shares have plunged 58 percent since the start of the year over concerns about its mounting debt. AMC paid about $3 billion including debt to pick up American rival Carmike Cinemas Inc., Europe’s Odeon & UCI Cinemas Group Ltd. and a smaller Swedish chain called Nordic Cinema Group AB.
The deal will bring the number of Cineworld screens to 9,542 in the U.S. and Europe, making it the No. 2 theater chain in the world by that metric, the company said in a statement. In 2014, Cineworld bought Polish Cinema City International for about 500 million pounds and it acquired small, more highbrow U.K. chain Picturehouse for 47 million pounds in 2012.
The takeover would leave the two biggest U.S. chains under foreign ownership, as AMC has been controlled by Wang Jianlin’s Dalian Wanda Group of China since 2012. Regal unsuccessfully tried to sell itself in 2014.
Barclays Plc, HSBC Bank Plc and Investec Bank Plc advised Cineworld on the transaction and Morgan Stanley was adviser to Regal.
— With assistance by Thomas Seal, and Ruth David