By buying Canadian rival Cineplex, Britain's Cineworld has decided to be "predator rather than prey" as the industry consolidates amid competition from "big-spending streaming platforms", says Alice Hancock in the Financial Times.
The deal will allow it to tap the $770m annual revenues from the Canadian box office. The acquisition comes after the company announced that it had missed full-year revenue forecasts, blaming a "disappointing run of film sequels" in the first half of 2019.
The deal has already "raised eyebrows" given Cineworld's "heavily indebted balance sheet" due to a previous $3bn purchase of US cinema operator Regal at the end of 2017, says Oliver Gill in The Daily Telegraph.
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While the company insists that Cineworld "can cope with this debt" because it is a "very strong cash machine", its high level of borrowing means that it is already one of the most shorted companies on the London Stock Exchange. Cineworld shareholders need to calm down, says Alec Macfarlane on breakingviews. True, more debt-driven acquisitions look "scary" after a "dreary" year at the box office. However, the deal gives Cineworld a 75% box-office market share in Canada, which is a "stable, mature market".
What's more, the return on invested capital is a "reasonable" 8.6% and the cost-savings estimate could prove "conservative", given savings on the Regal deal ended up being closer to $190m than the initial estimate of $100m. The company may well work off much of the debt in time "for the next sequel".
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