Regal Entertainment Group has confirmed that it is in negotiations to be acquired by European cinema major Cineworld in an all-cash deal. The proposed merger would value Regal at USD $23 per share, while the company’s share closed on NYSE at USD $19.36 but hit USD $21 in after-hours trading. The combined entity would challenge AMC-Carmike-Odeon in size, outpace Korea’s CJ CGV and accelerates the trend towards mega-mergers of global cinema circuits.
As of the end of last year Regal had 7,267 screens and Cineworld had 2,053 for a combined 9,320 – though both have opened many more cinemas this year – compared to 11,225 for the combined screens of AMC, Carmike, Odeon & UCI and Nordic Cinema Group. Regal has 7,315 screens across 561 theatres in 43 states along with Guam, Saipan, American Samoa and the District of Columbia as of 30 September 2017.
In response to the story that was broken by Reuters, Regal put out a press release stating:
No agreement has been reached, and there is no assurance that any transaction will result. Regal Entertainment Group 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.
Cineworld has declined to comment.
Both Cineworld and Regal are publicly traded companies, which raises the possibility that another company could come in with a ‘spoiler’ bid. Regal’s shares had previously peaked at USD $23.08 on 26 January this year and stood at USD $23.24 on 29 November last year. Meanwhile Cineworld shares spiked 6% at the London Stock Exchange. The move also saw a rise in the share price of other North American cinema operators, with AMC up 8.4%, Cinemark 3.7% and Imax up 5.6%.
US shares in cinema-related companies have been in decline this year, with AMC hardest hit with a drop of over 50%, while UK and European cinema shares have mostly gained in the past 12 months, including Cineworld. This means that Regal and Cineworld have roughly similar market cap, despite Regal having more than twice as many screens as Cineworld. Regal is valued at USD $2.83 billion, compared to Cineworld’s GBP £1.9 billion (USD $2.54 billion), while the proposed deal would value Regal at USD $3.07 billion. Cineworld has seen its revenue grow 10.6% in this year’s period to 16 November.
Regal had stated in 2014 that it was exploring the possibilities of a strategic sale and had hired Morgan Stanley to lead this effort, but took itself off the market in 2015. Most recently Belgian Kinepolis acquired Canada’s second largest exhibitor Landmark. In the past year Regal had acquired two Santikos theaters in Houston and seven Warren Theaters. Meanwhile there has been speculation that Korean-based CJ CGV could make a big for UK/European Vue International.
Cineworld and Regal could “sense an opportunity to assume the role of theater consolidator now that AMC is on the sidelines with an over-leveraged balance sheet,” Bloomberg Intelligence analyst Paul Sweeney said.
The weakness of Regal’s share price makes this an opportunistic move for Cineworld – just like the Brexit vote gave AMC a hefty discount on Odeon in the summer of 2016. Regal was formed out of a wave of Chapter 11 bankrupcy reorganisations in and acquisitions by Denver-based billionaire Phil Anschutz in 2001. While Anschutz only own just over 10% of Regal, he controls the company through a separate class of voting shares.
The fact that this new emerged prior to the conclusion of the deal will not make Cineworld happy (note that they have so far failed to comment) as it leaves the door open for a big by another entity, with Korea’s CJ CGV and Mexico’s Cinepolis the strongest potential candidates. Cineworld has 2,049 screens across 221 sites in Britain, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel, but the deal would give it trans-Atlantic presence.
Having denied that it is considering selling Odeon to Vue, AMC had previously confirmed that it is looking for an IPO of its Odeon-Nordic entity in 2018-2019. Vue is also understood to be preparing for an IPO. Cineworld was unable to bid for Odeon due to geographical overlap in the UK, but had earlier acquired the Picturehouse art-house chain as well as buying several prime locations from Empire cinemas in the UK, including several Imax screens.
The potential Cineworld-Regal deal shows that scale is needed to combat scale. Scale on the media conglomerate side (Comcast NBC, Disney, 20th Century Fox) means that exhibitors need to be larger in order to gain leverage when negotiating with their suppliers (studios). AMC-Odeon was an example and this would be another. Cinema operators also continue to be battered by suggestions that Hollywood studios could introduce a premium video-on-demand (PVoD) window of releasing film on streaming platforms 30-45 days after their theatrical opening, as well as the constant background presence of Netflix with its plans for 80 annual original feature film productions.
Additional reporting by J. Sperling Reich.
