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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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".
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
-
Curtain falls as Cineworld files for bankruptcy
News Cinema chain Cineworld is filing for bankruptcy in the US, and shareholders are likely to be wiped out. How did it come to this?
-
Cineworld faces a bleak future – investors should stay away
Analysis Weighed down by crippling debts and with consumers tightening their belts, Cineworld's future does not look bright, says Rupert Hargreaves. Investors should steer well clear.
-
Curtain up at Cineworld as lockdown ends, but threats remain
News Cineworld’s shares rose as people returned to cinemas in their droves. But streaming companies such as Netflix and Amazon aren’t standing still. Matthew Partridge reports
-
The curtain comes down at Cineworld as it shuts all its cinemas
News Cinema chain Cineworld is closing its operations in Britain and America. But this crisis is not due to Covid-19 – it is largely self-induced. Matthew Partridge reports
-
Cineworld closure: don't blame James Bond, blame gearing
Advice The crisis at Cineworld shows why it’s important to pick healthier firms when betting on the recovery, says Cris Sholto Heaton.
-
Curtain up at Cineworld
Features Cineworld, the cinema chain, has shrugged off sector weakness and has room to grow, says Matthew Partridge.
