Cineworld to buy Regal Entertainment for $3.6bn

Cineworld has reached an agreement to buy US rival Regal Entertainment Group for $3.6bn (£2.7bn), creating the world's second largest cinema operator.

Under the terms of the deal, which is expected to be strongly accretive to earnings in the first full year following completion, Cineworld will pay $23.00 per share for Regal in cash, giving an enterprise value of $5.8bn (£4.3bn).

The acquisition, related expenses and the refinancing of the existing Cineworld and Regal debt will be funded by the proceeds of a fully underwritten rights issue by Cineworld, which will raise about $1.7bn, and approximately $4bn to be raised through committed debt facilities.

Cineworld said its largest shareholder, Global City Holdings, which has a stake of around 28%, has agreed to take up its full pro rata entitlement under the terms of the rights issue.

Cineworld chief executive officer Mooky Greindinger 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.

"Regal is a great business and provides Cineworld with the optimal platform on which we can continue our growth strategy. Both companies are strongly committed to bringing a high end cinematic experience to their customers. Consolidation is an important move forward and the best practice we have successfully rolled out across Europe will be the key driver to continued success."

Regal chief executive office Amy Miles said: "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. The combination of our two great companies, Cineworld's tremendous success in the UK, as well as other markets they have entered since, and Cineworld's commitment to maintain a strong presence in the US and Knoxville, provide a global platform positioned for continued growth and innovation."

Canaccord Genuity said the acquisition implies an EV of 8.0x FY17E which is towards the bottom of the range of recent deals.

"We believe the timing is brilliant and do not expect a rival bid nor any regulatory issues; however, we believe the (reverse) acquisition is fraught with execution risk. The other concern for Cineworld shareholders is that, post-deal, Cineworld assumes Regal's undisturbed valuation - and not the other way round. Using the last undisturbed share price, Regal's share price has fallen by 7.7% since its IPO in May 2002."

At 0940 GMT, Cineworld shares were down 3.4% to 527.50p.