Regal confirmed Tuesday after the market closed that it was in talks for an all-cash acquisition at a price of $23 per share — a 17% premium over its closing share price of $19.63, which had risen by $1.38 during the session on first word of the merger discussions. The offer would be worth about $3.1 billion. Regal also said it would not comment further until negotiations conclude.
Regal shares closed up another 54 cents at $20.17 on Wednesday after hitting $21 early in the session. The $23 offer price is near Regal’s all-time high closing price of $24.45 in November of 2016.
The deal comes amid declining box office revenues in North America, with forecasts of a drop of at least 2% in 2017 despite what’s expected to a blockbuster opening of “Star Wars: The Last Jedi” in mid December. London-based Cineworld is facing a tough economic environment, thanks partly to Britain’s plan to exit the European Union.
Regal reported last month that third-quarter attendance fell 14% to 44.69 million customers. Revenue dropped 12% to $716 million, which the company blamed on the unimpressive slate of movies.
Regal is based in Knoxville, Tenn. Billionaire Philip Anschutz has a controlling stake with about 10% of the shares. Its major brands are Regal Cinemas, Edwards Theatres, and United Artists Theatres. London-based Cineworld is the second-largest cinema operator in Europe with more than 2,000 screens at 221 sites in nine countries. Cineworld’s largest shareholder is Global City Holdings BV.
A combined Regal-Cineworld would be able to compete more effectively with AMC Entertainment, which is controlled by China’s Dalian Wanda Group, along with digital distributors such as Netflix and Apple. AMC is the largest chain in the world with 2,200 screens in 244 theaters in Europe and more than 8,200 screens in 661 theaters in the United States.
CFRA analyst Tuna Amobi told Variety that the deal is coming amid increasing consolidation in the exhibition industry, pointing to AMC’s two 2016 deals in which the company bought the U.S.-based Carmike chain for $1.1 billion and Europe’s Odeon chain for $1.2 billion. He also noted that Regal explored a sale in 2015 but was unable to find a buyer.
“The price seems as attractive as Regal could hope for and it’s no secret that Anschutz has been looking to cash out,” he added. “So the deal isn’t really surprising. This is a mature business that’s being exploited for cash flow so consolidation makes sense.”
Amobi also noted that British regulators will likely OK the deal, adding, “AMC’s purchase of Odeon sailed through so I see no reason why this would not be approved.”