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.

Cineworld open their latest cinema in Stoke on Trent with a VIP evening. manager Paul Foster Lord Mayor Jean Bower and senior vi

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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".

Advertisement
Advertisement - Article continues below

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".

Advertisement

Recommended

Visit/517688/the-british-equity-market-is-shrinking
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stock markets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019
Visit/510135/trade-war-ceasefire-boosts-stockmarkets
Economy

Trade-war ceasefire boosts stockmarkets

Stockmarkets sighed with relief after the G20 summit in Japan brought a handshake between Donald Trump and Xi Jinping.
4 Jul 2019

Most Popular

Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020
Visit/currencies/600665/currency-corner-new-zealand-dollar-kiwi-vs-us-dollar
Currencies

Currency Corner: how is the New Zealand dollar doing against its US counterpart?

The New Zealand dollar has been doing well against the US dollar in recent months, but has started to wobble a little. Is it still a buy? Dominic Fris…
20 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020