Cineworld boss explains merits of £2.7bn Regal deal
Cineworld (CINE) 531p
Loss to date: 16%
Original entry point: Buy at 632p, 16 March 2017
Cinema operator Cineworld (CINE) has confirmed plans for a £1.7bn rights issue to help finance its £2.7bn acquisition of US rival Regal Entertainment. The rights issue price is expected to be revealed in January 2018.
The company believes it can achieve $100m of pre-tax synergies a year. Speaking to Shares, chief executive Moshe Greidinger says examples of cost savings including paying less for screens, projectors and sound equipment, plus reduced corporate and advisory costs as Regal will no longer be listed on the New York Stock Exchange.
The shares have been weak since Cineworld first announced its interest in Regal (29 Nov) amid expectation that the rights issue would be priced at a large discount to the market price before the news came out. That has put our Great Idea into negative territory.
There remains some concern in the market that the company is taking on too much debt in buying Regal. Its ratio of net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) will go from 1.0 times to 4.0 times which is very high.
Greidinger says it will take two years until the ratio is reduced below 3.0, a more comfortable level. The deal is expected to boost earnings in the first full year following completion (2019 financial year).