posted 12-16-2019 11:36 AM                       

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Cineplex Inc. has agreed to a friendly takeover deal that values the operator of Canada's largest chain of movie theatres at $2.8 billion, including debt.

Cineworld Group PLC has agreed to pay $34 per share in cash, a 42 per cent premium to the closing price for Cineplex shares Friday.

Cineworld will also take on the debt owed by the Toronto-based company, which has 165 movie theatres across Canada.

"We believe this transaction today is both financially compelling and in our shareholders' best interest," Cineplex chief executive Ellis Jacob said in a statement.

If the deal gets approved by shareholders and regulators, Cineplex will become part of a global company listed on the London Stock Exchange.

The companies expect the transaction to close in the first half of 2020.
Other potential buyers possible

However, Cineplex has seven weeks to solicit and negotiate with other potential buyers who may be willing to pay more for the company.

Cineworld would receive a termination fee under certain circumstances including if Cineplex finds another buyer with a superior offer.

Cineplex has diversified in recent years into a variety of entertainment-related businesses including advertising, events programming and the Rec Room — a chain of locations serving food, drink and amusements.

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posted 12-16-2019 02:49 PM                       

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Cineplex Inc., Canada’s largest cinema chain, has agreed to be acquired by
U.K.-based movie-theatre owner Cineworld Group plc.

The proposed deal, announced early Monday morning, is worth $2.8-billion
in cash and assumption of net debt. Cineworld has offered $34 per share
for the Toronto-based company’s outstanding common shares. At the market
close on Friday, Cineplex stock was trading at $24.01. Cineworld’s offer
represents a 39-per-cent premium on the average share price in the 30 days
leading up to Dec. 13.

The deal is subject to approval by shareholders of both companies and is
expected to close in the first half of 2020.

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The agreement provides for a seven-week “go-shop period,” expiring Feb. 2,
2020, which allows Cineplex to entertain other offers.

Cineworld’s ownership could significantly change the way people pay for
movie tickets in Canada. The company is planning to launch a subscription
service that charges a flat monthly fee for unlimited movie tickets within
roughly six months of the deal closing. Its Regal chain launched the
service, called Unlimited, in the United States in July. The service has
different pricing tiers. In areas where single tickets are cheaper, the
monthly fee is lower, but subscribers have to pay extra to go to theatres
not included in that tier. There is also a surcharge for premium-format
films such as those in 3-D, Imax and 4DX, which Cineworld CEO Mooky
Greidinger said subscribers attend more often than those outside the
service.

“It’s not a bargain. It’s a deal that works for people that really love
movies, in a way that they want to go every week,” Mr. Greidinger said.
Cineplex had been examining the idea of a subscription business, he added.
“To go into this venture, which is not connected to a big player, would
take them a year and a half to two years. ... We will be able to bring
this to the Canadian customer in a relatively quick way.”

Cineplex has a 76-per-cent share of the market in Canada, with 1,695
screens in 165 theatres across the country. The company employs roughly
13,000 people in Canada and the U.S. Its annual revenue for 2018 was
$1.6-billion.

Cineworld had US$4.1-billion in revenue last year and has 9,498 screens in
786 cinemas. The company has grown through acquisitions. After completing
its US$3.6-billion purchase of Knoxville, Tenn.-based Regal Entertainment
Group last year, it became the second-largest movie theatre operator in
the world, after AMC. According to numbers presented by Cineworld,
acquiring Cineplex would make it the largest operator in North America,
with 8,906 screens to AMC’s 8,043.

Three-quarters of Cineworld’s revenue comes from the United States. It
also has operations in the U.K., Ireland, the Czech Republic, Hungary,
Poland, Slovakia, Bulgaria, Romania and Israel, with about 30,000
employees worldwide.

“Scale matters in this business,” Mr. Greidinger said on a call Monday.
While it likely does not mean paying less to film studios for content, he
added, bigger exhibitors do have advantages in co-operating with studios
on marketing and promotions. While the company expects cost savings in the
combined businesses, Cineworld has no plans to close any Cineplex
theatres. In fact, Mr. Greidinger said it hopes to expand the business.

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“We will start looking at new locations and additional places where new
cinemas are needed,” he said. “We will continue the capital expenditure in
the way of refurbishment [of existing theatres] ... and investing in new
premium screens ... also new food offerings, probably.”

In a release, Cineplex said global scale is needed “to compete effectively
in an evolving entertainment landscape.”

Cineplex declined an interview request Monday, citing the go-shop process
in which it is now engaged. In an e-mail, spokeswoman Sarah Van Lange said
that while changes such as “vendor consolidation and employee
restructuring” are common in such acquisitions, the company would not
speculate on the impact on jobs. “It is still very early in the process,
and nothing is certain,” she said.

Movie theatres everywhere have had to cope with a fragmented media
landscape, with companies such as Netflix, Amazon, Apple and Disney
building up streaming services that offer a plethora of content that
people can access on demand at home.

“There will be a big battle in the streaming arena because of these huge
players that are entering now,” Mr. Greidinger said. “The theatrical
business is not home entertainment. People will never stay seven days at
home. We are competing for their free time outside of the house.”

[76]Like Cineplex’s CEO, Mr. Greidinger has pushed back at services such
as Netflix, saying he will not show movies they produce in the chain’s
theatres unless those companies respect an exclusive time frame for
theatrical release before putting content online.

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Traffic to movie theatres has been slowing everywhere. At Cineplex,
attendance has fallen for the past three years. In 2018, 69.3 million
people came through its box office, about the same attendance level as in
2010.

“The entertainment industry continues to transform, and we are pleased
that through this agreement we are ensuring Cineplex is part of the next
era of global entertainment,” CEO Ellis Jacob said in a statement Monday.

The company has been responding to shifts in the industry by attempting to
diversify its business. It has opened the Rec Room, a chain of venues that
combine bar and restaurant areas with entertainment such as arcade games
and virtual reality. It also acquired Playdium, a food-and-entertainment
complex geared to kids and families, and added more locations. In 2017, it
signed a partnership with Dallas-based Topgolf Entertainment Group, which
offers golf-related entertainment such as high-tech driving ranges, and
has been working on developing its first location. Last year, it invested
in Seattle-based VRStudios, which makes the virtual-reality equipment that
Cineplex has been installing in movie theatres and other locations.

In 2018, these businesses, combined with Cineplex’s media division – which
has a network of screens displaying ads and other content outside movie
theatres at locations such as fast-food restaurants – together accounted
for almost a quarter of the company’s revenue.

Cineplex has been working on a new movie-theatre concept called
[77]Junxion that incorporates more food, gaming and entertainment into
cinemas. Theatres are the “core business,” Mr. Greidinger said, but the
amusement business is healthy and Cineworld will “continue the
investment.”

The company has also been coping with declining attendance at movie
theatres by making more money from customers who do come through the
doors. It now sells alcohol at more than 80 theatres, helping to boost
concession revenues. Over the past decade, concession revenues per
customer climbed from $4 to $6.36, and the average customer spent $11 at
the box office, compared to $8 10 years ago. Cineplex has introduced a
slew of new features that allow it to charge a premium on tickets,
including 3-D projection, seats that move in response to the action on the
screen, in-seat effects such as wind and scents, and VIP theatres with
cushy armchairs and concessions delivered to filmgoers in their seats.
Those premium tickets made up 44 per cent of its box office revenues last
year.

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Cineworld cited Cineplex’s market share in Canada, its investment in
premium formats and its 10-million-member loyalty program as factors that
made the deal attractive. Mr. Greidinger noted that Cineplex has room to
grow, particularly with 4DX theatres. He suggested the company could add
as many as 15 of those in Canada next year, depending on when the deal
closes.

“The growth in this business is coming from new premium offerings,” he
said.

Cineplex investors have been spooked by the industry’s challenges and
pushed the stock into a slide after an earnings miss in 2017.

Cineplex will hold a special meeting of shareholders to vote on the deal,
which requires at least two-thirds support. Its board of directors is
unanimously recommending that shareholders vote in favour of the deal.
Cineworld will require majority support from its shareholders. Mr.
Greidinger, deputy CEO Israel Greidinger – his brother – and their family
own a combined 28-per-cent stake in Cineworld and will vote in favour.

Cineplex said in a statement that it will continue paying its monthly
dividends until Feb. 28, 2020, and will not declare further dividends
after that time.

Cineplex will continue to have a head office in Toronto, Mr. Greidinger
said, but some operations will be shifted to other offices, such as the
Regal headquarters in Knoxville. Not all of Cineplex’s management team
will be staying with the company, he added, though he did not specify who
would depart.

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Cineplex had been in discussions about a possible deal with various
groups, including Cineworld, Mr. Greidinger said, before this acquisition
began to pick up steam in the past couple of months. Cineplex’s Ms. Van
Lange would not comment on how long the company had been looking for a
buyer but noted that, globally, both studios and theatre chains are
consolidating. In a research note Monday, Canaccord Genuity analyst
Aravinda Galappatthige wrote that a competing bid would be “unlikely.” He
also suggested that the non-cinema sides of the business could be sold off
to help Cineworld pay down its debt.

Cineworld is paying for the deal largely through US$2.3-billion in loans
but expects to find up to US$130-million in annual savings by 2021 as a
result of the transaction. The company’s debt stood at US$3.3-billion as
of June 30, roughly 3.3 times earnings before interest, tax, depreciation
and amortization, or EBITDA. Mr. Greidinger said Monday that the deal will
bring the debt up to four times EBITDA but added that he was confident it
would return to the 2019 level by the end of 2021.

“Making another large acquisition at a time when markets are already
worried about debt levels is an extremely brave move by Cineworld,” said a
report Monday from Russ Mould, investment director at AJ Bell in London.
“Its purchase in 2018 of U.S. cinema chain Regal Entertainment raised many
eyebrows because it meant the company would have very large debts for a
number of years until it generated enough cash from operations to reduce
borrowings to a more comfortable level. The number of short-sellers –
people betting on its share price falling – has been increasing this year,
primarily over concerns about a weak film slate in 2019 and sky-high debt
levels.”

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posted 12-17-2019 02:09 PM                       

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Cineplex Inc. has agreed to be bought by British theatre chain Cineworld in a $2.8-billion deal that, if approved, would create the largest cinema empire in North America, the company announced on Monday.

Cineplex is the dominant theatre banner in Canada, with a 75 per cent share of the box office. But at 1,700 screens, it’s a relatively minor player compared to a giant like Cineworld. In an industry in which streaming services are weaning studios off their dependence on cinemas, joining a giant could be the right move for Cineplex, analysts suggested Monday.

The Cineworld Group plc offer, which values Cineplex at $34 a share, would boost Cineworld’s screen count to more than 8,900 screens in North America, surpassing AMC and making it the largest cinema circuit on the continent, Cineworld chief executive Moshe Greidinger told investors on a conference call.

Cinemas have been struggling to hold on to their right to screen films exclusively for several months before they’re shown on other platforms. With studios such as Disney running their own streaming services, the pressure to shrink the theatrical window will grow, said Sam La Bell, head of research at Veritas Investment Research.

“You want to have enough bargaining power with the studios so you can have sway,” he said. “The bigger you are, the more bargaining power you have.”

The deal needs to clear several hurdles before it is approved, including a seven-week period during which Cineplex can solicit competing offers. But analysts didn’t have high expectations for the go-shop phase.

“We believe that this transaction is most likely the end game,” CIBC analyst Robert Bek wrote in a research note. “There is low probability that a white knight will step in with a competing bid, however this scenario is not off the table.”

The deal also needs regulatory approval in Canada, two-thirds approval from Cineplex shareholders, and approval from a simple majority of Cineworld shareholders. Cineworld says it already has assurances from its largest shareholder, which owns a 28 per cent stake.

We don’t see any deal threats to the deal, just some baggage to drag across the line
Robert Bek, analyst, CIBC

“While current market share of Canadian box office at 75-per-cent-plus may lead to anti-trust scrutiny from the regulatory body, we don’t see any deal threats to the deal, just some baggage to drag across the line,” Bek wrote.

If the deal goes through, Greidinger said he will roll out Cineworld’s Unlimited subscription plan in Canada, allowing moviegoers to watch as many films as they want for a monthly fee.

“The success of Unlimited is really indisputable,” Greidinger said.

After closing at about $24 on Friday, Cineplex shares soared following the acquisition announcement Monday, closing at $33.96 — just below Cineworld’s offer. The $2.8 billion transaction value includes the assumption of net debt, Cineplex said.

“Given Cineplex’s recent share price underperformance, valuation and high-quality asset mix … we are not entirely surprised,” RBC analyst Drew McReynolds wrote about the deal.

Amid turbulence in the business, Cineplex has taken strides to diversify itself, entering the restaurant sector with its Rec Room chain of pub-arcade hybrids. It also runs the Playdium arcade chain and an arcade-equipment rental business. On the movie side, Cineplex has added a slate of premium screening options — VIP theatres, enhanced viewing experiences such as UltraAVX and 4D — to distinguish itself from the experience of watching at home, allowing the company to extract more revenue from a shrinking audience base, La Bell said.

While Greidinger spoke positively about Cineplex’s non-theatre businesses on Monday, analysts questioned how long they’d last after the entirely debt-financed deal.

“Asset sales are probably in the mix,” Le Bell said, suggesting that Cineworld will be motivated to pay down debt and might not be interested in staying in the restaurant business. Greidinger, however, noted that Cineplex’s arcade supplier sends equipment to other theatres in the Cineworld network.

He said Cineworld is expecting to realize US$130 million in cost savings after the purchase.

“Consolidation is a part of the life today,” Greidinger said, adding that the number of screens in his empire “is not what counts.” What counts, he said, is “cash flow and the profit.”

Theatres are ultimately competing for attention, said Kaan Yigit, president and research director at Solutions Research Group Consultants Inc. That means they’re not just up against streaming services.

“So if you want to compete for attention with that scale/size, you either have to be a narrow specialist or of a certain size yourself,” Yigit said in an email.

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