Cineworld agrees major European acquisition - UPDATE

10th Jan 2014 09:24

Cineworld has proposed the acquisition of a rival European cinema group that would almost double the size of the combined company and create the second-largest player in the continent. Cineworld, capitalised at around £600m, has made a cash and shares offer for Poland-listed, Dutch-headquartered Cinema City International (CCI) that has an enterprise value (EV) on a debt- and cash-free basis of £503m. To fund the takeover, Cineworld will raise £110m in a rights issue in March at 230p, secure new bank debt and will issue new shares representing almost a quarter of the enlarged group. CCI's well regarded Chief Executive Mooky Greidinger will be appointed to that same role for the enlarged group, with Cineworld Chairman Anthony Bloom will continuing in his role.Central and Eastern-Europe focused CCI, which has operations in 99 multiplexes in Bulgaria, Czech Republic, Hungary, Israel, Poland, Romania and Slovakia, generated earnings before interest, tax, depreciation and amortisation (EBITDA) in 2012 of €60.2m (£49.7m) on revenue of €280.7m (£231.6m). Shareholders of both companies will be required to approve the deal, which, with cost synergies of £2m having been identified, will cost Cineworld 8.7 times EV/EBITDA and likely propel it into the FTSE 250.Cineworld also provided an update on its recent trading, with box office up 4% thanks to admissions growth of 1.3% and average ticket price rising 2.6% to £5.40.Broker Numis said: "Our initial view is that the transaction has strategic sense, but whether or not it can enhance what was already an attractive organic growth story is in question."Increasing its target price to 500, Canaccord added: "Cineworld will now be a major player in the global Cinema market and this alone, coupled with the exciting growth opportunities provided by Cinema City, deserves a re-appraisal of our target price."N+1 Singer said: "On first read this seems a strategically compelling move, which has the potential to secure superior growth for Cineworld shareholders well into the mid-term. The fact that the deal metrics appear to stack up adds to the deals attractions."Shares in Cineworld marched 7.4% higher to 421p by 10:50 on Friday.OH