Cineplex Inc. (TSX: CGX) shares jumped 41% to $33.91 on recent news that the Canadian theatre chain is being bought by Britain’s Cineworld Group Plc (LSE: CINE) for $2.8 billion (CAD).
Under the deal, Cineworld will be paying $34 a share for Cineplex, which is a 42% premium to CINE’s Friday closing price. The deal will be funded by $2.3 billion of loans and Citigroup Inc. analysts cautioned that the British company’s debt will remain high after this transaction. However, they also noted that this was a sensible deal.
(Cineplex stock chart. Click to enlage.)
Shares haven’t been this high for CINE stock in more than a year, though it is nearly half of its 2016-2017 highs.
He couldn’t call it a threat, but Cineworld CEO Mooky Greidinger said in an interview that he is well aware of the change in the audience consecution now that streaming services are so popular.
“I am not happy with the fact that Netflix are trying to create the kind of reality of day-and-date releases. I don’t believe that this is right, nor is the right way to maximize income from a movie. Yet other streaming companies are working with the windows and respecting the window.”Cineworld shares rose 5% after the news was released, which helped alleviate an earlier 8.9% drop, its biggest in around two years.
This come as theatre chains across North America should expect added pressure from the growing number of streaming services and their offerings. Bloomberg Intelligence analyst Amine Bensaid reported in a November 2019 research note that the audience is starting to tip in their favour.
“Top theater chains are gearing up for a challenging 2020 box-office year, as a weaker slate and surge in streaming services could mean another down year for the industry.”
Cineplex operates 165 movie theatres across Canada.
Cineworld is pushing into North America and nearly a third of its business is done in this continent. The company spent $3.6-billion on purchasing American operator Regal Entertainment Group in 2018.