Exhibition giant Cineworld, which acquired U.S. chain Regal Cinemas in 2018 for $3.6B, is adding another group to its portfolio with a proposed $2.1B (C$2.8B) purchase of Canada’s Cineplex. The deal would see Cineworld pay C$34 per share in cash and would make Regal the largest cinema circuit in North America by number of screens. The acquisition is unanimously supported by Cineworld’s Board of Directors.
Cineplex is Canada’s biggest operator with 165 cinemas and 1,695 screens. The exhibitor holds a 75% market share of box office. In 2018, the Canadian box office grossed approximately $770M, with annual attendance of about 98M. Between 2014 and 2018 Canadian box office revenue and average ticket prices grew at compound annual rates of 1.9% and 3.5%, respectively.
Cineworld calls the transaction outlined today “Highly synergistic” bringing approximately $130M of annual pre-tax combination benefits by the end of 2021. There is expected to be a double-digit accretive to earnings and free cash flow in the first full year following completion (2021) and the return on invested capital is expected to exceed Cineworld’s cost of capital that same year.
A debt-financed acquisition, it remains subject to Cineworld and Cineplex shareholder approval, and other regulatory approvals. Completion is expected by the end of the first half of 2020. Cineworld’s largest shareholder (Global City Theatres B.V., which holds an approximate 28% stake in the company) has agreed to vote in favor of the acquisition.
Cineworld CEO Mooky Greidinger says, “Cineplex is a great business. It is the number one cinema operator in Canada and is well positioned for further growth. The combination of Cineplex and Regal will create the leading North American cinema operator with unrivalled scale and opportunity. By deploying our operational best practices, we expect the transaction to create compelling value for shareholders and to be strongly EPS and free cash flow accretive.
“The acquisition of Cineplex strengthens our belief in the theatrical business, one of the most affordable out-of-home forms of entertainment. We constantly strive to provide the best customer experience and maintain technological leadership and we are excited about Cineworld’s prospects for 2020 and beyond as we look to complete the Cineplex transaction, our U.S. refurbishment program and the rollout of Unlimited, and we look forward to the great selection of movies to come.”
Cineworld this summer launched movie ticket subscription service Regal Unlimited in the U.S., with a take-up rate that exceeded expectations.
Anthony Bloom, Chairman of Cineworld, added today, “The Board of Cineworld believes that the acquisition of Cineplex is in the interests of its shareholders as it fits squarely within our strategic acquisition objectives and is expected to be strongly earnings and cash flow accretive. Going forward our immediate post-acquisition objectives will be to combine Cineplex with our U.S. business to create a leading North American cinema operator; maximize the synergistic combination benefits of the Cineplex acquisition; continue the currently successful refurbishment of the Regal chain in the U.S.; and focus strongly on a structured debt reduction program targeting leverage towards 3x net debt/EBITDA by the end of 2021.”