Cineworld heads to Canada with purchase of Cineplex

Cineworld's purchase of its Canadian rival Cineplex will allow it to tap the $770m annual revenues from the Canadian box office.

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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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

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