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Cineworld makes move for US cinema theatre chain Regal

By Oliver Haill

Date: Wednesday 29 Nov 2017

Cineworld makes move for US cinema theatre chain Regal

(ShareCast News) - UK cinema chain Cineworld Group is poised to make a $3.07bn (£2.3bn) offer for the second largest chain in the US, Regal Entertainment.
Cineworld, which owns the Cineworld and Picture House chains, said it planned to fund the $23-per-share offer through new debt and by raising funds via a rights issue, which its 28% shareholder Global City Holdings has committed to a "full subscription".

"The proposed financing of the potential transaction will allow the enlarged group to continue its current strategy of investment in the business, as well as to maintain its policy of progressive dividends," the company said.

The FTSE 250 group said it was in "advanced discussions" and that its will "only proceed with the potential transaction in circumstances and on terms which it believes would be accretive to shareholder value".

Regal said overnight that "no agreement has been reached" and it "does not intend to make any further comment, or respond to any inquiries, until an agreement, if any, is reached, or discussions have been terminated".

The US group's market capitalisation was close to $2.4bn before the news of the deal broke, while Cineworld's market valuation, based on its closing price on Tuesday, is £1.88bn or $2.5bn.

Acquiring Regal would give Cineworld access to the world's largest cinema market, just as a new wave of consolidation has gripped the market, led by AMC, the US number-one that is 80% owned by Wanda.

AMC bought the UK's Odeon for £921m in July last year and acquired US number-four Carmike for $1.2bn last December, then snapping up Nordic Cinemas Group for £750m this January.

At its third quarter trading statement, AMC floated the idea of a partial listing for Odeon and Nordic Cinemas.

Meanwhile, anticipation that UK's Cineworld and rival Vue International might be targets reached a head last week with reports that Vue is being eyed up by Odeon and Korea's CJ-CGV.

Shares in Cineworld fell 13% to just above 600p on after an hour's trading on Wednesday, their lowest level since the start of the year.

Analysts at Canaccord Genuity said striking now, when the US cinema market has had a tough summer amid the seemingly inexorable rise of Netflix and other online rivals, "is a brilliant move by Cineworld, in our view, as it reverses the tables and would push it into the challenger position in the world's largest cinema market", though there is a possibility that rival bids could also appear.

With each company having a similar market capitalisation, a merger would create a company comparable in size to AMC.

Canaccord pointed to a tough summer for US cinema share prices as newsflow included falling Q3 attendances from a poor Q3 film slate, stories that Amazon was seeking to set up a premium video on demand service, news that ex-Netflix executive Mitch Lowe was dramatically dropping the price of his MoviePass subscription service, and that Disney is taking an unprecedented 65% of cinema revenues from Star Wars.

On the valuation, recent deals in the market suggest a transaction multiple range of 9-12 times EBITDA is the "going rate".

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