Cineworld Targets Europe With £900m Merger

The British cinema operator Cineworld is close to finalising a £900m merger with a Polish-listed rival that will aim to establish a European mulitplex powerhouse.

Sky News can reveal that Cineworld Group (LSE: CINE.L - news) will announce as soon as Friday that it has agreed to a combination with Cinema City International (CCI), which owns cinemas in seven countries, including the Czech Republic, Hungary and Israel.

The deal is expected to be billed as a merger of equals, according to a person close to the discussions, although Cineworld has a market capitalisation roughly 80% larger than its new partner.

The source added that it would be legally structured as a takeover of CCI by Cineworld.

Cineworld, which is due to issue a trading update on Friday, is the UK's largest cinema operator by market share, but trails Odeon UCI Cinema Group by number of multiplexes.

Last year, Cineworld was ordered by competition regulators to offload three cinemas following its takeover of the Picturehouse chain.

The instruction underlined the difficulty of finding new growth opportunities in the company's home market, and is understood to have been one of the factors prompting a search for international expansion opportunities.

The merger with CCI follows the publication of industry data by Rentrak showing that UK and Ireland (Other OTC: IRLD - news) box office takings in 2013 fell by 1% to £1.17bn.

The decline was the biggest since Rentrak began measuring takings in 1991.

CCI operates almost 100 multiplexes in Bulgaria, Czech Republic, Hungary, Israel, Poland, Romania and Slovakia.

Cineworld's UK-based rivals have also grown overseas, with Odeon UCI now having a presence in seven countries, while Vue Entertainment, which is now owned by a Canadian pension fund, owns sites in Portugal, Taiwan, Germany and Denmark.

Odeon UCI explored a sale to a rival or financial investor last year but decided against it. There was speculation that Dalian Wanda, a group owned by China's richest man, was also interested in buying the group.

The timing of the most ambitious deal in Cineworld's history is likely to surprise the stock market given that Steve Wiener, the company's founder, announced just seven weeks ago that he was to step down after 18 years at the helm.

An insider dismissed the idea that Mr Wiener did not support the CCI merger, insisting that he was fully behind it.

Mr Wiener's imminent departure will mean that the combined group is run by Moshe Greidinger, CCI's chief executive, although other senior management will be drawn from the ranks of both companies, and the board is likely to comprise a majority of existing Cineworld board members.

The merger is likely to involve combining the cinemas themselves rather than the underlying property assets, said another source, since Cineworld leases its multiplexes from third party owners of the real estate. The property assets will remain listed in Poland.

Cineworld is being advised on the deal by Barclays (LSE: BARC.L - news) , as well as its brokers JP Morgan Cazenove and Investec (LSE: INVP.L - news) , while CCI is being advised by HSBC.

Cineworld, which has a market value of roughly £570m, declined to comment, while CCI, which is valued on the Warsaw Stock Exchange at about £310m, could not be reached.

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