Canada's largest movie chain has agreed to a $2.8-billion friendly takeover deal as theatres struggle with declining attendance amid increased competition for moviegoers' attention.
U.K.-based Cineworld Group PLC will pay $34 per Cineplex share in cash, which amounts to a 42 per cent premium to the closing price for the chain's shares Friday. Cineworld will also take on the debt owed by Toronto-based Cineplex.
Cineplex shares soared more than 41 per cent, or $9.87, to $33.88 on the Toronto Stock Exchange in early Monday trading.
Cineplex's board of directors recommends shareholders vote for the acquisition.
"We believe this transaction today is both financially compelling and in our shareholders best interest," Cineplex CEO Ellis Jacob said in a statement.
Cineplex shareholders are likely to approve the transaction, wrote Aravinda Galappatthige, an analyst with Canaccord Genuity, in a research note.
"Given CGX's significant market share in Canada and historical premium to U.S. peers, we believe the elevated valuation was largely warranted."
If the deal is approved, Cineplex and its 165 movie theatres across Canada will become part of Cineworld's global chain, listed on the London Stock Exchange.
Founded in 1995, Cineworld became a public company in May 2007. It claims to be the second largest cinema chain in the world — in the top two position by number of screens where it operates, including in the U.S., U.K., Ireland, Poland and Israel. The company boasts nearly 9,500 screens across 786 sites as of Dec. 1, 2019, and about 30,000 employees, according to its website.
Cineplex's Ellis said as the entertainment industry continues to transform, the company is pleased this agreement will ensure "Cineplex is part of the next era of global entertainment."
The Canadian chain has seen declining attendance in recent years. In 2018, the chain filled about 69.3 million seats, according to its most recent annual report. That number has consistently fallen since it hit a recent high of roughly 77 million in 2015.
The declining attendance comes as movie theatres face growing competition from streaming services such as Netflix, Crave, Amazon Prime Video, Apply TV Plus and, most recently, Disney Plus.
Cineplex's share price has reflected industry challenges, falling from above $50 in the summer of 2017 to a range of $22 to $27 after the company's second-quarter financial results missed analyst expectations.
The movie chain worked to diversify its offerings beyond movies in recent years and rebrand as an entertainment company in an effort to overcome lacklustre attendance and boost profits.
It doubled down on premium experiences such as VIP cinemas and 4DX, which adds environmental effects, like lightning and scent, to movie watching. Cineplex also expanded food services with a focus on adding alcoholic beverages to more theatres. The company dedicated some of its screens to events, which include showing sports games.
It created an amusement and leisure segment that includes a focus on esports, as well as building up The Rec Room, Playdium and Topgolf Canada locations. The company announced in late November a hybrid movie, dining and entertainment space dubbed Junxion.
The companies expect the deal, which is still subject to shareholder and regulatory approvals, to close in the first half of next year.
It includes a seven-week period during which Cineplex can solicit, evaluate and negotiate other acquisition offers from third parties.
That period expires on Feb. 2.
Cineplex would pay Cineworld a termination fee under certain circumstances, including if Cineplex finds a buyer with a superior offer.
Cineworld would pay a similar fee to Cineplex if the chain fails to garner enough support from its shareholders.
