British firm to purchase Cineplex for $2.8 billion
Cineworld will buy Canada’s Cineplex for $2.8 billion including debt, making the British firm the biggest cinema operator in North America as it looks to tackle increasing competition from online streaming services.
Cineworld said on Monday the deal would involve it seeking US$2.3 billion in loans, sending shares of the FTSE-250 member down as much as nine per cent and erasing early gains.
The $34-per-share offer is at a premium of 42 per cent to the Toronto-based company’s closing price on Friday.
“We believe this transaction today is both financially compelling and in our shareholders best interest,” Cineplex CEO Ellis Jacob said in a statement.
If the deal is approved by shareholders and regulators, Cineplex will become part of a global company listed on the London Stock Exchange. The companies expect the transaction to close in the first half of 2020. The deal would add 165 cinemas and 1,695 screens to Cineworld’s network of 9,498 screens across 786 sites.
U.S.-based AMC Entertainment Holdings is the world’s largest cinema operator with about 11,000 screens in 1,000 theatres.
“We see the cinema industry as broadly stable and are therefore positive about today’s earnings-enhancing acquisition ... although the debt level does make us grip the edge of our seat,” Peel Hunt analysts said in a note.
The deal also allows Cineworld to tap into the Canadian box office.
Cineplex has a 75-per-cent share of this market.
“Our immediate post-acquisition objectives will be to combine Cineplex with our U.S. business,” Cineworld chairman Anthony Bloom said. CEO Moshe Greidinger said on a call with analysts that he does not expect the deal to face any antitrust issues.
While cinemas rely on big movie releases to generate gains, streaming services like Netflix and Amazon’s Prime Video are invading that space with direct-to-stream movies or releasing movies within a few weeks of their cinema debut.
“It (Cineworld) is effectively betting that Hollywood studios will consistently release films we all want to see, and that a recession won’t hurt demand for a trip to the flicks,” AJ Bell investment director Russ Mould said. “If this doesn’t turn out to be the case then Cineworld could start to sink under the weight of its debt.”