UK movie theatre operator Cineworld Group plc (LON:CINE) has agreed a transformative deal to buy US peer Regal Entertainment Group (NYSE:RGC) for US$3.5bn, part-funded by around a £1.7bn rights issue and debt.
Cineworld will pay US$23 per Regal share, representing a 12% premium to Regal’s closing price on Monday, which implies an enterprise value of US$5.8bn.
"We are excited to have reached an agreement with Cineworld, at a price that represents a meaningful premium on Regal's unaffected share price for our shareholders,” said Amy Miles, chief executive of Regal.
“We believe this partnership with Cineworld will enhance Regal's ability to deliver a premium movie-going experience for customers and further build upon our strategy of introducing innovative concepts and premium amenities designed to enhance the value of our theatre assets.”
Creating a global company with cinemas across 10 countries
The combination will see Cineworld extend its reach to the North American market in creating a global company with cinemas across 10 countries.
The North America has the largest box office market in the world. It has an industry box office of greater than US$10bn in each year since 2008 and admissions in excess of 1.25bln in each year over the same period, Cineworld said.
"We have long had high respect for Regal and for its strong position in the largest box office market in the world and we are delighted that the Regal Directors have unanimously agreed to recommend our offer to their shareholders,” said Chineworld chief executive Mooky Greindinger.
The deal is expected to be strongly accretive to earnings in the first full year following completion in fiscal 2019, the group added.
The Cineworld said it anticipates it will maintain its existing dividend policy after completion of the deal.
The acquisition, related expenses and the refinancing of existing debt of the two companies will be funded by the proceeds of a rights issue by Cineworld to raise about £1.7bn and through committed debt facilities of US$4.0bn.
Cineworld shares fall; Regal's up
In lunchtime trading, Cineworld were down 3.2%, or 17.5p at 528.5p
Russ Mould, AJ Bell, investment director, said: “Judging by the way in which the shares have slumped since the deal was first unveiled investors in Cineworld are concerned that the £4.3bn swoop for America’s Regal Entertainment will be a flop rather than a box-office smash.”
He added: “However, at first glance, the planned purchase does (just) pass three of the four tests which shareholders should apply to any acquisition and perhaps this explains why Cineworld’s shares are holding relatively firm today, as management unveils how the deal is to be funded via a £1.7bn rights issue and £3bn in debt facilities.”
In pre-market New York trade, Regal Enertainment shares were up 6% to US$22.05.
-- Updates share price, adds analyst comment --