What's going on?
Britain’s Cineworld agreed on Tuesday to buy out its American rival Regal Entertainment – a $5.8 billion deal that will create the world’s second-biggest cinema operator.
What does this mean?
Regal is the second-largest movie theater operator in the US, managing more than 7,000 movie screens; Cineworld is the second-largest player in Europe, with over 2,000 screens of its own. Cineworld’s CEO says that he wants to boost Regal’s profit margins through cost savings and perhaps higher ticket prices (great, right?) – and he expects the montage to lead to blockbuster profits by 2019.
Why should I care?
The bigger (motion) picture: Cinema operators are reeling from consumers’ shift to digital.
Movie theaters have been experiencing Vertigo as consumers have flocked like The Birds towards digital streaming over Notoriously expensive movie tickets (apologies to Alfred Hitchcock). Cross-border mergers are a way for cinemas to protect their business by avoiding over-exposure to volatility in some markets (like the UK, Cineworld’s main market, where consumer spending has dropped of late). Cineworld’s deal follows recent cross-border acquisitions by America’s AMC (itself owned by China’s Dalian Wanda Group) of European chains like Odeon and UCI Theatres.
For markets: The wisdom of the deal isn’t without a Shadow of a Doubt (okay, enough Hitchcock).
Some analysts have warned that Cineworld might be getting in over its head by shelling out $3.6 billion in cash for Regal, part of which the company will have to borrow. On top of that, there’s a worry that American cinemas won’t fare as well as Cineworld’s CEO seems to think: annual box office revenues in the US are expected to have declined 2% this year, in spite of big-name releases like Wonder Woman and Blade Runner 2049. Skeptical investors sent Cineworld shares down on the news of its big-ticket merger; they likely view the deal as high risk, given the price Cineworld is paying (AMC is facing similar investor skepticism over its own acquisitions).