U.K.-based Cineworld is to acquire Cineplex, Canada’s leading cinema chain, in a deal that values the Toronto-listed company at $2.1 billion (C$2.8 billion) and puts Cineworld in position to become North America’s biggest exhibitor.
Cineworld said Monday that it had secured unanimous approval from its board of directors for the acquisition, and that its leading shareholder, Global City Theaters, with 28% of the shares, had also given its blessing. The move, if approved by regulators, will accelerate the consolidation of the world’s movie theater business, which has plateaued in some countries and is under pressure from the growth of streaming video.
Cineworld previously paid $3.6 billion for Regal Entertainment Group, its entry into the U.S. market last year. The company plans to combine the operations of Cineplex and Regal to create the largest exhibitor in North America. Following completion, the enlarged group would have 11,204 screens globally and a combined 8,906 screens across the U.S. and Canada.
Cineworld has signed an agreement with Cineplex in which Cineplex shareholders will receive C$34 in cash for each common share, amounting to C$2.18 billion ($1.65 billion). That price compares with the C$24.01 at which Cineplex shares ended trading on Friday. The rest of the acquisition will be financed through debt, without the issuance of new shares. That will push up Cineworld’s debt burden, but the company said that this could be brought back down to acceptable levels by the end of 2021.
Cineworld said that merging the Cineplex and Regal businesses could create $130 million of annual benefits. Half of that would come from economies of scale, while the other $65 million would come from new business initiatives, including the application of operational best practice, its subscription program and additional advertising. Cineworld estimates the cost of restructuring to be less than $20 million.
“Cineplex is a great business. It is the No. 1 cinema operator in Canada and is well-positioned for further growth,” said Cineworld CEO Mooky Greidinger. “The acquisition of Cineplex strengthens our belief in the theatrical business, one of the most affordable out-of-home forms of entertainment.”
In 2018, Canada grossed about C$1,021 million ($770 million) at the box office, with annual attendance of 98 million. Between 2014 and 2018, the country’s box office revenue and average ticket prices grew at compound annual growth rates of 1.9% and 3.5% respectively, according to Cineworld.
In 2014, Cineworld merged with European chain Cinema City International. That transaction resulted in the creation of one of the continent’s leading exhibitors.