Cineworld to buy Canadian rival for £1.6bn

Cineworld has sparked fears it is taking on too much debt after launching a £1.6bn takeover bid for Canadian rival Cineplex.

The deal, which must first be approved by both companies’ shareholders, will make the london-listed Cineworld the largest cinema group in north America if it goes ahead.

It comes hot on the heels of its buyout of US chain regal cinemas for £2.7bn in early 2018.

But the bid for Cineplex, including related expenses, will be financed by £1.7bn of debt.

After the deal, the combined group would have a debt pile four times larger than its annual earnings, though it has promised to shave this down to three times by the end of 2021.

david Madden, an analyst at CMC Markets, said: ‘roughly two years ago, Cineworld acquired regal entertainment in the US, which caused the london-listed group to ramp up its debt level.

‘Since acquiring regal, the company has had to sell some theatres and it has revamped others. The latest ticket revenue hasn’t been too hot, so one wonders why the group is so keen to overstretch itself.

‘Cineworld could be on the verge of being excessively indebted, which could be a major problem for the group in the medium-term.’

The company currently has a market value of £2.9bn.

Cinema chains such as Cineworld are being forced to consolidate in the face of competition from streaming platforms such at netflix and Amazon Prime, as more consumers choose to watch films at home.

Big names in the television and film industry are also elbowing their way into the streaming market. disney acquired the film and TV assets of 21st Century Fox for more than £50bn last year, and US conglomerate Comcast bagged Sky for £30bn. Canaccord Genuity analyst nigel Parson said Cineworld’s latest deal showed it was ‘determined to be predator rather than prey’.

But Mooky Greidinger, Cineworld chief executive, dismissed the threat posed by streaming platforms, saying netflix and Amazon Prime customers are more interested in series rather than movies.

He added: ‘The acquisition of Cineplex strengthens our belief in the theatrical business, one of the most affordable out-of-home forms of entertainment. People will always want to go out.’

Greidinger predicts that the release of the latest Star wars film (starring daisy ridley, pictured) this week will give the company a further pre-Christmas boost.

Analysts at Peel Hunt noted there were two views on the prospects of cinema businesses. while some believe ticket sales will remain broadly stable, with some modest increases in pricing, others believe that 2020 will see a sharp dip in sales.

Hedge funds which share this pessimistic view have been betting against Cineworld. At the end of last week, ten investors were shorting the company’s shares, meaning they will profit if their value falls. But Peel Hunt’s ivor Jones said: ‘we are pleased to see Cineworld increase its exposure to the cinema business through acquisition and reiterate our Buy recommendation.’

Shares climbed 2.5pc, or 5.1p, to 211.2p.