Cineworld in talks to buy Regal for more than $3B
Britain's Cineworld Group is in talks to purchase Regal Entertainment Group, the movie-theater chain controlled by billionaire Philip Anschutz, for more than $3 billion to double its size and create a bigger international rival to industry leader AMC Entertainment Holdings Inc.
The companies are negotiating a price for Regal of $23 a share, they said in separate statements, confirming earlier reports by Reuters and Bloomberg. The talks could still fall apart, the companies said. Cineworld declined as much as 16 percent, the most in a decade, after saying it would fund the acquisition with a stock sale and debt. The shares were down 15 percent as of 10:14 a.m. in London.
The deal would let Cineworld expand beyond its home market, as Britain's plan to leave the European Union weighs on consumer spending, and add thousands of screens as the industry faces intensifying competition from online-video providers. A deal to reshape Regal, the second-biggest cinema chain in the U.S., revives an unsuccessful attempt to sell the company in 2014.
"It's probably useful to be bigger in the industry now when everyone's concerned about video on demand, Netflix and the shortening of exclusivity periods for cinemas," said Owen Shirley, an analyst at Berenberg in London. "If you're a bigger player, you've got more negotiating power with the Hollywood studios."
Regal and its rivals in the U.S. theater industry are under pressure as streaming services like Netflix Inc. invest heavily in original movies, giving audiences more reasons to stay home. Movie attendance has stagnated in the U.S., and many films this year have failed to meet expectations at the box office. The summer season - usually the most lucrative for the industry - was the worst since 2006.
Knoxville, Tennessee-based Regal had been valued at $2.83 billion based on trading earlier Tuesday, while Cineworld has a market capitalization of 1.6 billion pounds ($2.15 billion). Shares of Regal surged as much as 17 percent Tuesday before being halted, and other U.S. cinema chains also rose.
Cineworld and Regal could "sense an opportunity to assume the role of theater consolidator now that AMC is on the sidelines with an overleveraged balance sheet," Bloomberg Intelligence analyst Paul Sweeney said.
Cineworld's shareholder Global City Holdings, which has a 28 percent stake, has committed to subscribe to the equity increase. The purchase of Regal would be classified as a reverse takeover, and a deal would require Cineworld shareholder approval, the company said.
Execution risk is probably playing into Cineworld's Wednesday share slide, as shareholders await clarity on the benefits of the deal and how the company can squeeze value from the purchase, as well as how much equity they will raise, Shirley said. Investors may also be wary of jumping into a U.S. market that's been weak, he said.
AMC has grown with two major acquisitions, first Carmike Cinemas in the U.S., and Odeon & UCI Cinemas as well as Nordic Cinema Group in Europe. The company is considering an initial public offering of its European cinema operations that could help reduce its $4.29 billion in borrowings.
Regal, with 7,379 screens, had hired Morgan Stanley three years ago to evaluate options, then announced in early 2015 it wouldn't try to find a buyer. The company has an enterprise value of $5.35 billion, according to data compiled by Bloomberg.
Regal has expanded its market share this year by buying smaller chains, including two Santikos theaters in Houston and seven Warren Theaters.
European chains have been drawing attention from foreign buyers, with South Korea's CJ CGV Co. saying earlier this month it may bid for U.K. group Vue International.
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Bloomberg's Scott Soshnick, Aaron Kirchfeld and Thomas Seal contributed.