U.K.’s Cineworld Group to acquire Cineplex for $2.8B

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The deal, which is still subject to a number of regulatory approvals, is expected to close in the first half of 2020.

U.K.-based cinema operator Cineworld Group is to acquire Toronto-based Cineplex in a deal valued at around $2.8 billion.

Under the debt-financed deal, Cineworld has agreed to acquire all of the issued and outstanding common shares of Cineplex for $34 per share in cash. The transaction is expected to close in the first half of 2020 and must first meet a number of customary closing conditions and regulatory requirements, including approvals from Investment Canada and the Competition Bureau.

The agreement includes a seven week “go-shop period” in which Cineplex can actively solicit and enter negotiations with other potential buyers. That window ends on Feb. 2, 2020, with Cineplex noting that it does not intend to provide updates unless its board of directors determines it is necessary.

Cineplex, which went public in 2003, operates a chain of 165 movie theatres across the country. In a press release issued Monday, the Canadian company said the deal will ensure it “has access to the global opportunities required to compete effectively in an evolving entertainment landscape,” adding that the proposed transaction “creates a new partner for the Canadian film industry to collaborate with, as Cineworld Group has extensive distribution and exhibition businesses outside of Canada.”

Cineworld, soon be the biggest operator of movie theatres in North America, is already among the largest cinema chain companies in the world. Before the transaction, Cineworld says it operates 9,498 screens across 786 sites in the U.S., U.K., Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.

The company made a major play in the North American market two years ago when it acquired Tennessee-based Regal Entertainment for around USD$3.6 billion. That deal brought more than 7,300 Regal screens under the Cineworld umbrella.

With the addition of Cineplex, Cineworld says it will own more than 11,200 screens. Cineworld said it will implement a number of its strategies across Cineplex’s business including its “Unlimited” subscription program, which is already established in the U.K. and was rolled out in the U.S. more recently.

“Cineworld Group shares our passion for entertainment and mirrors our commitment to delivering exceptional guest experiences through state-of-the-art technology. The entertainment industry continues to transform and we are pleased that through this agreement we are ensuring Cineplex is part of the next era of global entertainment,” said Cineplex president and CEO Ellis Jacob in a statement.

According to figures provided by Cineworld, Cineplex has a 75% share of the domestic box office market, which last year grossed $770 million. The remainder of the market is held by Landmark (12%), Guzzo (2%) and others (11%).

While the deal gives Cineplex greater financial backing, attempts to grow its Canadian footprint would likely be scrutinized by Canada’s Competition Bureau. In 2013, after Cineplex had entered into an agreement to acquire 24 theatres from Empire, the Competition Bureau blocked the sale of two of those theatres – in Whitby and Kanata, ON – stating it would lead to a substantial lessening of competition in those markets.

Regarding the sale of Cineplex, executives for Cineworld told investors that they do not expect any anti-trust issues as Cineworld does not currently have any business activities in Canada. They also said there is no intention to close any Cineplex theatres in Canada.

Scotiabank is acting as Cineplex’s exclusive financial advisor, while its legal advisors are Goodmans LLP (Canada), Herbert Smith Freehills LLP (U.K.) and Baker & McKenzie (U.S.).

The announcement comes during a spate of M&A activity involving Canadian companies. In August, Hasbro entered an agreement to acquire eOne for around $5.3 billion. That transaction is currently being examined by U.K. competition watchdog Competition and Markets Authority (CMA).

More recently, Ashtead Group, a publicly traded equipment rental company based in the U.K., acquired William F. White International for around $260 million. As well, Toronto-headquartered Kew Media says it is actively engaging in discussions regarding a number of potential transactions, after the company last week announced it will undertake a review process to assess a number of strategic alternatives.

In recent years, Cineplex has diversified its business model so it is not so reliant on box office revenue, which has become increasingly dictated by the theatrical success of Hollywood franchises. In its most recent financial filing, Cineplex reported Q3 revenues of $418.4 million, up from $386.4 million the year prior. Cineplex employs around 13,000 people across Canada and the U.S. and says around 70 million guests use its theatres and location-based entertainment venues annually across Canada.