UK’s publicly listed exhibitor Cineworld is expanding into Central Europe through £503 cash and equity deal for Warsaw-listed Cinema City International (CCI), which will make it the second largest chain in Europe after Odeon UCI. The deal signals a strategic shift for Cineworld after a small domestic acquisition and and an abandoned south European deal, indicating that future growth lies in Central and Eastern Europe (CEE), as well emerging markets like Turkey and Russia, while box office declines in Western Europe.
The deal, subject to shareholder approval, will see Cineworld pay CCI £503 in cash and shares, of which £272m will be in cash, with a £110m rights issue launched to help fund the purchase, and giving CCI a 24.9 per cent stake in the merged business. CCI currently operates 99 multiplexes with 966 screens (giving it a 9.75 screen/site ration) in six countries in Central and Eastern Europe (Poland, Hungary, Czech Republic, Bulgaria, Romania and Slovakia) as well as in Israel. The combined entity will have 201 sites and 1,852 fully-digital screens (9.21 s/s ratio), indicating that the two are a good match in terms of mostly being new multiplexes. Shares rose by 10.27 and seven per cent for Cineworld and CCI respectively, meaning the markets largely welcomed the merger. The operator will be the largest or second largest in all territories where it is present. But at what price?
Competition and change in strategy
Unlike its UK competitors Odeon UCI and Vue, Cineworld has previously been focused exclusively on UK and Ireland , where it operates five of the ten highest grossing sites (though both BBC and Screen claim that it operates all ten of the most profitable sites). Odeon had inherited sites in Spain, Germany and elsewhere through its merger with Odeon in 2004, following the acquisition of both by Guy Hand’s Terra Firma. Odeon UCI abandoned plans for a £1bn+ floatation, settling for a £475 re-financing plan instead two years ago. Reasons cited for this change included “problems in its Spanish markets, where results were weak in the second quarter after a 30 per cent fall in volumes, and a bumper crop of bigger blockbuster films set for release in 2015.” Vue had meanwhile bought Polands second largest cinema operator Multikino, having already established itself in Germany (through the acquisition of CinemaxX), Portugal, Denmark and Taiwan, before being bought by two of Canada’s largest pension funds last year.