Cineworld statement regarding Regal Entertainment Group Acquisition

  • Cineworld Group plc ("Cineworld" or the "Company") and Regal Entertainment Group ("Regal") today announce that they have reached agreement on the terms of a recommended proposal for Cineworld to acquire, for cash, the entire issued share capital of Regal (the "Acquisition").
  • The acquisition price of US$23.00 per Regal share values the entire issued and to be issued share capital of Regal at US$3.6 billion (£2.7 billion), with an implied enterprise value of US$5.8 billion (£4.3 billion).
  • The Acquisition will create a globally diversified cinema operator across ten countries and allow Cineworld to access the attractive North American cinema market, which has the largest box office market in the world with an industry box office of greater than US$10 billion in each year since 2008 and stable admissions in excess of 1.25 billion in each year over the same period.
  • Following completion of the Acquisition ("Completion"), Cineworld and Regal (together, the "Enlarged Group") will have a combined 9,542([1]) screens across the United States and Europe making it the second largest operator in the world (by number of screens).
  • Attractive financial effects of the Acquisition: o Expected to be strongly accretive to earnings in the first full year following Completion (FY 2019); o Cineworld's return on invested capital associated with the Acquisition expected to meet its cost of capital in the first full year after Completion; o The Cineworld Board expects to be able to maintain Cineworld's existing dividend policy following Completion, underpinned by the future prospects of the Enlarged Group; and o The Enlarged Group is expected to be levered c.4.0x net debt/pro forma 2017E EBITDA([2]) (if Completion were to occur at the end of FY 2017 and full annualised pre-tax combination benefits of US$100 million were taken into account in calculating that EBITDA) with strong cash generation to drive a material deleveraging profile.
  • The Cineworld Board estimates that, following Completion, the Enlarged Group will be able to achieve annualised pre-tax combination benefits of US$100 million and additional annual structuring benefits of US$50 million.
  • Since Cineworld's combination with Cinema City Holding B.V. ("Cinema City") in 2014 (the "Cinema City Combination"), the Cineworld management team has grown EBITDA and revenue in the period FY 2013([3]) to FY 2016 by a compound annual growth rate ("CAGR") of 10.2 per cent. and 6.7 per cent., respectively, with an increase in EBITDA margin over the same period. This growth has been achieved by enhancing the customer experience, successfully acquiring new sites, diversifying multiplex offerings, implementing loyalty schemes and adopting a highly disciplined approach to cost. The Cineworld Board believes that the Cineworld management team can replicate this success with the Enlarged Group by implementing similar initiatives within the Regal business to further enhance shareholder value.
  • The Acquisition, related expenses and the refinancing of the existing Cineworld and Regal debt will be funded by the proceeds of a rights issue by Cineworld (fully underwritten on a volume basis by Barclays Bank PLC ("Barclays"), HSBC Bank plc ("HSBC") and Investec Bank plc ("Investec")), which will raise approximately £1.7 billion (the "Rights Issue"), and a portion of the approximately US$4.0 billion (approximately £3.0 billion) to be raised through committed debt facilities (the "Debt Facilities" and, together with the Acquisition and the Rights Issue, the "Transaction").
  • The size of the Acquisition means it is classed as a reverse takeover under the Listing Rules of the Financial Conduct Authority (the "Listing Rules") and accordingly it is conditional, amongst other things, on the approval of Cineworld's shareholders at a general meeting of the Company proposed to be held in February 2018 (the "General Meeting"). The Cineworld Board intends to unanimously recommend in the Combined Circular and Prospectus that Cineworld shareholders vote in favour of the resolutions to approve the Acquisition and to authorise Cineworld to proceed with the Rights Issue (the "Resolutions"). The directors of Cineworld intend to vote in favour of the Resolutions in respect of their own beneficial holdings, which amount to approximately 0.9 per cent. of Cineworld's total issued ordinary share capital as at the date of this announcement.([4])
  • The largest shareholder in Cineworld, Global City Holdings B.V. (the "Major Shareholder" or the "Greidinger Family Holding Vehicle"), which holds approximately 28 per cent. of Cineworld's total issued ordinary share capital as at the date of this announcement, has agreed to take up its full pro rata entitlement under the terms of the Rights Issue, in order to maintain its shareholding in Cineworld and, following Completion, the Enlarged Group. A sovereign wealth fund has agreed to co-invest in the Greidinger Family Holding Vehicle. The Major Shareholder has also agreed to vote in favour of the Resolutions in relation to its holding.
  • The Anschutz Corporation, which holds shares representing approximately 67 per cent. of the voting power in Regal, has agreed to provide its written consent to approve the Acquisition, with effect upon approval of the Transaction by Cineworld shareholders and satisfaction of the conditions set forth in the voting and support agreement. Delivery of written consent from The Anschutz Corporation is the only Regal stockholder action required to approve the Acquisition.
  • The board of the Enlarged Group will be the current Cineworld Board and the Enlarged Group's headquarters and registered office will be the current registered office of the Company.
  • Cineworld expects to publish a combined circular and prospectus, including the notice of General Meeting (the "Combined Circular and Prospectus") in January 2018. Subject to satisfaction of the conditions to the Acquisition, Completion is expected to occur during the first quarter of 2018.

Commenting on the Acquisition, Mooky Greindinger, CEO of Cineworld, 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. We strongly believe in our strategy which is to create 'The Best Place to Watch a Movie!' We have great teams at both Regal and Cineworld and we trust that based on their skills and professionalism we will lead the joint company to become a great success story."

Amy Miles, CEO of Regal, said: "We are excited to have reached an agreement with Cineworld, at a price that represents a meaningful premium on Regal's unaffected share price for our shareholders. Since becoming a public company, Regal has focused on delivering superior shareholder value, including return of capital in the form of regular and special dividends. We believe the transaction announced today provides compelling value for our stockholders.

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."

Please click here to view the full press release on the Cineworld Group website.