Commentary

U.K's Cineworld Shelling Out $3.6 Billion For Regal's Movie Screens

Cineworld Group, a London-based public company that traces its origins to a single screen in Israel in 1929 and is now operated by third-generation brothers — CEO Mooky Greidinger and his deputy, Israel — is acquiring Regal Entertainment Group, the U.S. chain of 561 movie theaters controlled since 2001 by billionaire Philip F. Anschutz.

“The $3.6 billion deal will create the world’s second largest cinema group after AMC, operating in 10 countries with 9,542 screens across the U.S. and Europe,” reports Deadline Hollywood’s Peter White. 

“Cineworld, headquartered in London, operates 232 theaters in Britain, Ireland and other countries. Buying Regal would instantly give it huge access to the world's largest movie market, noted Eric Handler, an analyst at MKM Partners,” writes Ryan Faughnder for the Los Angeles Times.

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“It's not often you can come into a market and be one of the biggest players,” Handler says.

The transaction has been approved unanimously by Regal’s and Cineworld’s boards of directors. But “the agreement also includes a ‘go shop period,’ which will allow Regal to actively solicit and evaluate competing offers. As both companies are public, watchers have mentioned that another prospective buyer could come in with a spoiler bid,” Deadline’s White continues. “The exhibition sector is under some pressure due to ongoing stress on the traditional movie model, and consolidation has been seen as the order of the day.”

Indeed. When news that Cineworld and Regal were chatting about a deal broke last week, Bloomberg Gadfly’s Tara Lachapelle pointed out that movie-theater company stocks have been taking a beating. That’s what happens when people stop venturing out for their cheap thrills.

“Fewer people are visiting movie theaters, and higher ticket prices are failing to make up for the revenue shortfall. That's forcing the largest cinema operators to go on a spending spree. They're buying as many worthwhile theaters as they can, while also undertaking costly renovations to add features such as reclining chairs and expanded food-and-drink counters in hopes of keeping customers from permanently converting into Netflix-hooked couch potatoes,” Lachapelle wrote.

“In the U.S., this summer's takings at the box office were at their lowest level for more than two decades. But annual takings have been more than $11 billion for the last two years,” the BBC points out

“And in the U.K., cinema attendance is up around 8% so far this year with around 165 million tickets sold each year. The numbers are still a far cry from U.K. cinema-going's peak after World War II, which saw a record 1.63 billion cinema admissions in 1946,” it continues.

The Greidinger “family’s 28% Cineworld stake represents three generations of cinema investment. It began with their grandfather in 1929. Inspired by the first talking picture, 1927’s The Jazz Singer starring Al Jolson, he opened a cinema in Haifa, Israel,” reports Alistair Osborne for The [London] Times. “That turned into Cinema City, the group sold to Cineworld in 2014 that brought the duo into the business.”

Regal’s shares have been gaining since news of the talks surface last week; Cineworld’s have been tumbling.

“Amy Miles, the Regal chief executive, said the offer represented ‘a meaningful premium on Regal’s unaffected share price’ and provided ‘compelling value for our stockholders,’” reports Chad Bray for the New York Times. “The deal would be structured as a so-called reverse merger, requiring the approval of Cineworld’s shareholders. It is expected to be completed in the first quarter of next year,” he continues, noting that it will be financed through a combination of debt and the sale of about £1.7 billion in equity. 

Whatever pressures the industry is facing, Mooky Greidinger is optimistic about the future of his combined entity, should the deal go through as structured.

He says: “Regal is a great business and provides Cineworld with the optimal platform on which we can continue our growth strategy. Consolidation is an important move forward, and the best practice we have successfully rolled out across Europe will be the key driver to continued success.”

In fact, Greidinger employs the word “great” a Trumpian four times across two paragraphs in his statement. In Hollywood, the word is boffo.

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