Regal Owner Cineworld to Acquire Canada's Cineplex for $2.1 Billion

Courtesy of Cineworld

Cineworld in London's Leicester Square

The deal will create one of the world's largest movie theater companies with brands that include Regal, Picturehouse and Cinema City.

U.K. exhibition giant Cineworld Group has reached an agreement to acquire Canada's Cineplex for $2.1 billion to create one of the world's largest cinema companies with over 11,200 screens globally. 

Cineworld will in the proposed deal pay $1.65 billion in cash, plus take on debt. Cineplex has 165 cinemas with 1,695 screens and dominates the Canadian theatrical market.

The company that last year acquired U.S. cinema powerhouse Regal said it would add Cineplex to expand its brands to include Regal, Picturehouse and Cinema City. It called the Canadian market "stable and attractive."

Anthony Bloom, chairman of Cineworld, said the deal "fits squarely within our strategic acquisition objectives and is expected to be strongly earnings and cash flow accretive." He added: "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."

Indeed, the firm said it would be the largest North American cinema circuit after the deal. 

"Cineplex is a great business. It is the number one cinema operator in Canada and is well positioned for further growth," said Cineworld CEO Mooky Greidinger. "The combination of Cineplex and Regal will create the leading North American cinema operator with unrivaled scale and opportunity. By deploying our operational best practices, we expect the transaction to create compelling value for shareholders." 

He also told analysts: "Scale matters in this business."

In a prepared statement, Greidinger added: "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 US refurbishment program and the roll-out of Unlimited, and we look forward to the great selection of movies to come."

Cineworld outlined the financial benefits of the deal by citing approximately $65 million of cost efficiencies "benefiting from the enlarged group's commercial scale, streamlining of functions, infrastructure consolidation and the removal of Cineplex's listing expenses" and approximately $65 million in revenue synergies "from business initiatives, including the application of operational best practice, its subscription program and additional advertising." The firm said that "additional savings from North American capital expenditure optimization" are not included in this forecast.

Cineworld expects that these benefits will reach approximately $120 million by the end of fiscal year 2020 and $130 million in fiscal year 2021. It expects to incur pretax costs of approximately $20 million over the two years to implement the combination benefits.    

The acquisition is subject to Cineworld and Cineplex shareholder approvals and regulatory consents. Cineworld's largest shareholder, the Greidinger family's Global City Theatres, which owns a stake of approximately 28 percent, has agreed to vote in favor of the deal. The firm said it expects to close the deal by early April.

Cineworld's stock was down 3.6 percent in early Monday trading. Management told analysts that while the deal will be debt-financed, it plans to lower debt after the deal close and feels comfortable with that given its track record of past acquisitions.