Cineworld's Regal Bid May Create Global Theater Giant

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A combined company could be a powerhouse across two continents and be in a much better position to compete with AMC.

Cineworld, a company with zero theaters in the U.S, is poised to become the second biggest movie exhibitor in the country, now that its bid to acquire Regal Entertainment appears officially unchallenged. If the deal closes, the Top 2 cinema operators in the U.S. will be controlled by foreign entities.

Regal had been in a “go shop” period where it could seek a better offer than the $3.6 billion — $5.9 billion including debt — offered by Cineworld, but the deadline expired Jan. 22. The next step is shareholder approval next month. “We envision minimal risk around the Cineworld shareholder vote, financing and/or regulatory approvals,” says B. Riley FBR analyst Eric Wold.

On paper, Cineworld, with a little more than 2,200 screens in nine European countries, is smaller than Regal, which operates more than 7,300 screens in the U.S., second to only China’s Dalian Wanda Group’s AMC Theatres, the world’s largest exhibitor, boasting more than 8,000 screens in the U.S. alone. But while the domestic box office struggled last year, the U.K. box office climbed 3.6 percent in 2017 to a record $1.9 billion, helping to put Cineworld in position to acquire a larger company.

A combined Cineworld-Regal will create a powerhouse across two continents and put them, together, in a much better position to compete with AMC. Size is also crucial for leverage when negotiating for box office share with studios, coming on the heels of Walt Disney demanding 65 percent of the gate from North American theaters showing Star Wars: The Last Jedi (not to mention a 5 percent penalty if they don’t show the movie for at least four weeks).

“Greater global scale can potentially improve overall bargaining power in discussions with studios surrounding film splits or windowing, which could possibly benefit the theater industry as a whole,” says Morgan Stanley analyst Benjamin Swinburne.

Even so, the deal could be derailed by Cineworld shareholders who have seen their stock mostly sink since the bid for Regal was disclosed. Of course, Israel’s Greidinger family is on board, given it owns roughly 29 percent of Cineworld, which will fund its deal for Regal via debt and equity raised in a rights issue worth $2.3 billion, and Moshe "Mooky" Greidinger is the company's CEO.

Regal shares closed Jan. 22 at $22.94, but if shareholders fail to approve the merger, the stock could sink into the high teens, where they were prior to Cineworld’s Nov. 29 bid for the company. “We haven't seen any evidence of another bidder emerging for Regal,” RBC Capital Markets analyst Leo Kulp says. “We do not anticipate a higher offer,” echoes Wedbush Securities analyst Michael Pachter. 

This story first appeared in the Jan. 25 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

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