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U.K. cinema giant Cineworld has reached an agreement to acquire U.S. sector powerhouse Regal Entertainment Group for $3.6 billion.
“The acquisition will create a globally diversified cinema operator across 10 countries and allow Cineworld to access the attractive North American cinema market, which has the largest box-office market in the world, with an industry box office of greater than $10 billion in each year since 2008 and stable admissions in excess of 1.25 billion in each year over the same period,” the companies said Tuesday.
Cineworld will pay $23 per Regal share in cash, bringing the deal’s value to $3.6 billion. Cineworld said the “implied enterprise value” of the transaction is $5.8 billion, with Regal putting the “total transaction value” at $5.9 billion, including debt.
The deal agreement includes a so-called “go shop period” during which Regal can actively solicit and evaluate competing offers. That period expires on Jan. 22. “There can be no assurance that this process will result in a superior proposal,” Regal said, adding that it does not plan to disclose developments during the process “unless and until its board of directors has made a decision with respect to any potential superior proposal.”
CIneworld is targeting annualized pre-tax deal benefits of $100 million and “additional annual structuring benefits of $50 million.”
Cineworld is one of the largest exhibitors in Europe and holds the number one or two position in terms of the number of screens in each of its regions. It operates 2,217 screens across 232 sites in the U.K., Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel. Regal operates 7,315 screens in 561 theaters in 43 U.S. states along with Guam, Saipan, American Samoa and the District of Columbia.
The deal comes amid a weaker U.S. box office this year, the growth of online video services, such as Netflix and Amazon, and several big acquisitions from AMC Theatres.
Regal on Nov. 28 had said that Cineworld had made an all-cash offer of $23 per share, but “no agreement has been reached, and there is no assurance that any transaction will result.”
Cineworld later said it was “finalizing due diligence in relation to a possible all-cash offer” and that it “would only proceed with the potential transaction in circumstances and on terms which it believes would be accretive to shareholder value.”
It also said: “Cineworld’s present strategy is to evaluate all opportunities to complement its organic growth. In keeping with this approach, it has continued to monitor possible selective acquisitions that have the potential to enhance its existing operations, and which allow it to expand into new markets. The potential acquisition of Regal would provide Cineworld with a highly attractive platform in the world’s largest cinema market.”
Now, the agreement is done. It is classified as a so-called “reverse takeover,” with the merged company expected to keep Regal’s stock market listing. Each company had a market value of around $2.5 billion-$3 billion before news of the deal talks emerged.
“We have long had high respect for Regal and for its strong position in the largest box-office market in the world,” said Moshe “Mooky” Greidinger, CEO of Cineworld. “Regal is a great business and provides Cineworld with the optimal platform on which we can continue our growth strategy. Both companies are strongly committed to bringing a high-end cinematic experience to their customers.”
And he said: “Consolidation is an important move forward, and the best practice we have successfully rolled out across Europe will be the key driver to continued success. We strongly believe in our strategy, which is to create ‘The Best Place to Watch a Movie’!”
Said Regal CEO Amy Miles: “We are excited to have reached an agreement with Cineworld, at a price that represents a meaningful premium on Regal’s unaffected share price for our shareholders. Since becoming a public company, Regal has focused on delivering superior shareholder value, including return of capital in the form of regular and special dividends. We believe the transaction announced today provides compelling value for our stockholders.”
She also said the deal would “enhance Regal’s ability to deliver a premium movie-going experience for customers and further build upon our strategy of introducing innovative concepts and premium amenities designed to enhance the value of our theatre assets.”
Cineworld has committed to maintaining “a strong presence in the U.S. and Knoxville,” where Regal is headquartered, she said.
B. Riley FBR analyst Eric Wold last week suggested Cineworld might have to face competing bids for Regal. “Given the previous valuation levels and our positive outlook for improving trends heading into 2018/2019, we would not be surprised if other potential bidders emerged now that Regal is in play,” he had written in an investor note. “While some Chinese buyers may be out of the market due to increased Chinese government scrutiny of overseas acquisitions, we could see other large overseas media/exhibitor players come into the picture, along with private equity.”
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