Cineworld Group PLC plans to acquire Regal Entertainment Group for $3.61 billion in a deal that gives the movie theater operator a larger global footprint.
Cineworld, based in the United Kingdom, said it would pay $23 cash per Regal share, marking an 11 percent premium over Regal's closing price on Monday. The deal is valued at $5.9 billion when including debt. The share price represents a 26 percent premium to Regal’s close on Nov. 27, the day before discussions became public.
Regal, based in Knoxville, Tennessee, is the second-largest U.S. cinema chain behind AMC Entertainment Group Inc. It operates 7,315 screens in 561 theaters nationally under brands including Regal Cinemas and United Artists. Cineworld operates 2,227 screens in nations including the U.K., Ireland, Poland, and Slovakia.
In Indiana, Regal operates 11 theaters, including Regal Greenwood Stadium 14, Regal Noblesville Stadium 10, Regal Shiloh Crossing Stadium 18 in Avon, Regal Village Park Stadium 17 in Carmel, UA Circle Centre 9 downtown, and UA Galaxy Stadium 14 on the northeast side of Indianapolis.
The deal is expected to close during the first quarter of 2018.
In morning trading, Regal shares rose 9.4 percent, to $22.67 each.
The deal allows gives Cineworld, which is headquartered in London, a path into the world's biggest movie market.
Cineworld will gain opportunities for growth outside Britain, where consumer spending is falling ahead of the country’s exit from the European Union. Movie-theater operators are consolidating to wring out costs and afford reclining chairs and expanded food-and-drink options to entice customers away from their Netflix binges at home.
“The joint group is going to create the best place to watch a movie,” Cineworld CEO Mooky Greidinger said in an interview Tuesday. Cinemas remain the “key drivers” of the industry, not home entertainment, he said. “The place to premier the big movies is in the cinemas.”
Shares of Cineworld fell 2.7 percent, bringing their decline this year to about 6 percent. The stock is down 19 percent since news of the talks emerged.
The company is expanding in the U.S. as the country’s theater chains are struggling with stagnating movie attendance. Many films this year have failed to meet expectations at the box office, and the summer season—usually the most lucrative for the industry—was the worst since 2006.
“The fact that if, in a certain year, there is a drop of 2 or 3 percent, it’s not the end of the world,” Greidinger said. Bigger movies still draw larger audiences, and those who watch Netflix and Amazon at home are still likely to go to the theaters, he said.
Cineworld has been refurbishing movie theaters in the U.K., Europe and Israel to offer “top of the class” facilities, Greidinger said, including wider seats, a variety of food offerings, better sound systems and bigger screens.
The deal will give the companies $150 million a year in pretax savings and structural synergies, Cineworld estimates. Changes it’s considering include modernizing Regal’s movie theaters and ticketing systems, people familiar with the offer said last week, asking not to be identified as the deliberations were private.
Billionaire Philip Anschutz’s Anschutz Corp. has agreed to provide its written consent to back the deal, the only Regal shareholder action required to approve the transaction, Cineworld said. Cineworld is funding the deal with debt and equity sold through a rights issue of about $2.3 billion.
The equity sale is set to cause “indigestion” for Cineworld shares in the short term, Peel Hunt analysts Douglas Jack and Ivor Jones said in a note to clients, lowering their rating to hold from add. “The long-term investment proposition has fundamentally changed as a result of higher debt and earnings becoming heavily dominated by mature markets,” the analysts said.
The offer follows a buying spree by AMC Entertainment Group Inc., the biggest U.S. exhibitor, whose shares have plunged 58 percent since the start of the year over concerns about its mounting debt. AMC paid about $3 billion including debt to pick up American rival Carmike Cinemas Inc., Europe’s Odeon & UCI Cinemas Group Ltd. and a smaller Swedish chain called Nordic Cinema Group AB.
The deal will bring the number of Cineworld screens to 9,542 in the U.S. and Europe, making it the No. 2 theater chain in the world by that metric, the company said in a statement. In 2014, Cineworld bought Polish Cinema City International for about 500 million pounds and it acquired small, more highbrow U.K. chain Picturehouse for 47 million pounds in 2012.
The takeover would leave the two biggest U.S. chains under foreign ownership, as AMC has been controlled by Wang Jianlin’s Dalian Wanda Group of China since 2012. Regal unsuccessfully tried to sell itself in 2014.