over 3 years ago • 2 mins
With UK-headquartered Cineworld now abandoning its $2 billion merger with Canada’s Cineplex – a plan which would have seen it become North America’s largest movie theater chain – at least one downtrodden cinema stock is finally ready for its close-up… 🎞
Cineworld has been on a dealmaking rampage in recent years – following in the footsteps of its larger rival, the American-based (but Chinese-owned) AMC. In late 2017, it splashed out on a game-changing $6 billion acquisition of US chain Regal Entertainment. Some, however, questioned the wisdom of the deal given the hefty borrowing involved – and the uncertain future of big-screen entertainment.
Such mutterings grew louder still after Cineworld announced a further expensive takeover in December, accompanied by yet more debt. After all, despite a blockbuster headline year, average movie attendance in North America showed no signs of reversing twenty years of declines – while the number of screens remained the same as in 2010.
Then the lockdown hit, shuttering theaters worldwide. With Cineworld’s $3.6 billion debts leaving it on a shaky financial footing – and Cineplex’s knocked-down stock leaving it worth less than half its agreed price – Cineworld said over the weekend it was backing out of the merger despite legal threats ✌️
Cineplex’s share price fell another 18% on Monday as hopes of a payday for investors looked dashed. Cineworld stock, however, rose 3%. It now looks somewhat more nimble than it would have with another $2 billion of borrowing – and slightly less likely to end up, like AMC, on the brink of bankruptcy.
The coronavirus has left the theater industry reeling, and may have put paid to attempts to combat the rise of streaming services through international diversification. But for those movie chains that survive, this year’s massive share price falls could turn out to be overdone 🤔
Besides private equity firms potentially spending their hoarded trillions on portfolios of select theaters, the newest streaming beast – Disney – may have an interest in snapping up big screens too. After all, its movies took 40% of the US box office last year – and the ability to enjoy 100% of the revenue from future theatrical releases may prove tempting…
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