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Cineworld to buy Canada's Cineplex for $2.1bn
16th Dec 2019 07:26
(Sharecast News) - Cineworld has agreed to buy Canadian cinema chain Cineplex for $2.1bn.
Under the terms of the deal, Cineplex shareholders will receive CAD34 per share in cash. The acquisition is expected to be double-digit accretive to earnings and cash flow in the first full year after completion and will add 165 cinemas and 1,695 screens to Cineworld's portfolio.
Cineworld said it was a "highly synergistic" transaction, with about $130m of annual pre-tax combination benefits by the end of full-year 2021.
Cineplex is the largest cinema operator in Canada by box office revenue and number of screens, with a market share of approximately 75% by box office revenue as at 30 September 2019.
Cineworld chairman Anthony Bloom said: "The board of Cineworld believes that the acquisition of Cineplex is in the interests of its shareholders as it fits squarely within our strategic acquisition objectives and is expected to be strongly earnings and cash flow accretive.
"Going forward our immediate post-acquisition objectives will be to combine Cineplex with our US business to create a leading North American cinema operator; maximise the synergistic combination benefits of the Cineplex acquisition; continue the currently successful refurbishment of the Regal chain in the US; and focus strongly on a structured debt reduction program targeting leverage towards 3x net debt/EBITDA by the end of 2021."
At 0900 GMT, the shares were down 3% at 199.95p.
Russ Mould, investment director at AJ Bell, said: "Making another large acquisition at a time when markets are already worried about debt levels is an extremely brave move by Cineworld.
"Its purchase in 2018 of US cinema chain Regal Entertainments 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 more comfortable levels.
"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.
"Therefore news that it is now buying Canada's largest cinema operator, Cineplex, for US$2.1 billion would suggest management are very good at shrugging off market concerns or they don't realise they are walking further into the lion's den."
Under the terms of the deal, Cineplex shareholders will receive CAD34 per share in cash. The acquisition is expected to be double-digit accretive to earnings and cash flow in the first full year after completion and will add 165 cinemas and 1,695 screens to Cineworld's portfolio.
Cineworld said it was a "highly synergistic" transaction, with about $130m of annual pre-tax combination benefits by the end of full-year 2021.
Cineplex is the largest cinema operator in Canada by box office revenue and number of screens, with a market share of approximately 75% by box office revenue as at 30 September 2019.
Cineworld chairman Anthony Bloom said: "The board of Cineworld believes that the acquisition of Cineplex is in the interests of its shareholders as it fits squarely within our strategic acquisition objectives and is expected to be strongly earnings and cash flow accretive.
"Going forward our immediate post-acquisition objectives will be to combine Cineplex with our US business to create a leading North American cinema operator; maximise the synergistic combination benefits of the Cineplex acquisition; continue the currently successful refurbishment of the Regal chain in the US; and focus strongly on a structured debt reduction program targeting leverage towards 3x net debt/EBITDA by the end of 2021."
At 0900 GMT, the shares were down 3% at 199.95p.
Russ Mould, investment director at AJ Bell, said: "Making another large acquisition at a time when markets are already worried about debt levels is an extremely brave move by Cineworld.
"Its purchase in 2018 of US cinema chain Regal Entertainments 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 more comfortable levels.
"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.
"Therefore news that it is now buying Canada's largest cinema operator, Cineplex, for US$2.1 billion would suggest management are very good at shrugging off market concerns or they don't realise they are walking further into the lion's den."