Cineworld to buy Canada's largest movie theatre chain in $2.8B deal

Cineplex being acquired by U.K. based Cineworld Britain's Cineworld Group Plc plans to buy Canada's Cineplex Inc. for $2.15 billion.

TORONTO — Canadian moviegoers may soon be able to sign up for an all-you-can-view subscription service if shareholders approve a $2.8-billion takeover deal of the country's largest cinema chain.

Cineplex Inc. and U.K.-based Cineworld Group PLC announced the deal Monday. It requires shareholder and regulatory approvals, but the companies expect it to close in the first half of next year.

Once that happens, Cineworld plans to start selling its Unlimited movie pass in Canada. The service, which the company operates in some of its existing markets, has consumers pay a monthly fee to watch as many movies as they want -- with an upgrade fee for special viewing options, such as 3D or Imax. The pass also includes perks like food discounts and advance screenings.

Cineplex's Scene loyalty program is expected to continue, the company said. "We have no reason to believe that there will be any changes to the Scene program as a result of this transaction," spokeswoman Sarah Van Lange wrote in an email.

The success of the Unlimited pass is "indisputable" in the chain's U.K. and Polish operations, said Cineworld CEO Moshe Greidinger during a conference call outlining the acquisition plans, adding it outperforms the company's expectations.

"This is to support cinema lovers who want to see many movies in a month."

At Cineworld's U.S. chain, Regal, the pass costs between US$18 and $23.50 monthly, plus tax, depending on how many theatres it includes.

Currently, a Cineplex general admission ticket at a Toronto theatre costs $13.99, while a special showing can run as high as $24.99 for a 4DX experience, which adds environmental effects, like lightning and scent, to movie watching.

Greidinger noted Cineworld's unlimited pass provides more ease for consumers to upgrade to a premium viewing experience, such as 3D, because the upgrade fee feels smaller once the pass is already paid for rather than when faced with the increase between a regular and premium ticket price.

The company completed its acquisition of Regal in the U.S. in March 2018 and rolled out the Unlimited pass at the end of July. It plans to do so "quicker" in Canada, said Greidinger.

Cineplex has dabbled in a similar program. It started testing Scene Gold in Edmonton in October 2018. The upgraded version of its free loyalty program allows members to pay $6.99 a month in exchange for faster points accumulation and more frequent free movies, no upgrade fee from a general admission to a premium ticket, and other perks. The program remains in pilot and only in Edmonton, Cineplex's Van Lange said in an email.

Still, Cineplex has mainly resisted the notion of an all-access movie pass. When a third-party movie pass company, Sinemia, launched in Canada in 2018 offering a set fee for a number of movies a month, Cineplex said it has "no relationship with them." Sinemia has since shuttered operations.

In addition to the movie pass, Cineworld plans to roll out reserved seating and enhanced concessions, according to its shareholder presentation on the proposed acquisition.

At the company's U.K. chain, Cineworld, consumers must choose a seat when booking their tickets. The online price includes a 75-pence booking charge.

Cineworld's opportunity to optimize online sales and roll out reserved seating would include an "incremental margin," according to the investor presentation.

Currently, Cineplex offers the ability to reserve seats based on location and type of experience, wrote Van Lange, but has plans to expand the service across its entire network early next year.

The Canadian chain rebranded as an entertainment company in recent years in an effort to overcome declining attendance and boost profits.

In 2018, the chain filled about 69.3 million seats, according to its most recent annual report. That number has consistently fallen since it hit a recent high of roughly 77 million in 2015.

The drop in numbers came as movie theatres face growing competition from streaming services such as Netflix, Crave, Amazon Prime Video, Apply TV Plus and, most recently, Disney Plus.

Cineplex's share price has reflected industry challenges, falling from above $50 in the summer of 2017 to a range of $22 to $27 after the company's second-quarter financial results missed analyst expectations.

It doubled down on premium experiences, expanded food services and added events coverage. It created an amusement and leisure segment, building up The Rec Room, Playdium and Topgolf Canada locations.

Cineworld may opt to divest some of Cineplex's offerings in the future, wrote Adam Shine, an analyst with National Bank of Canada, in a research note.

Shine singled out the company's digital media segment as well as its location-based entertainment platform, which includes the three amusement locations, for possible divestiture.

"One wonders if Cineworld will have the same appetite to roll out as many locations as Cineplex had envisioned and whether this business segment could also get sold at some point down the road," he wrote in response to questions from The Canadian Press.

Cineplex declined an interview request, with Van Lange saying the company can not provide additional information while it is involved in a seven-week period during which Cineplex can solicit, evaluate and negotiate other acquisition offers from third parties. That period expires on Feb. 2.

Cineplex's board of directors recommended that shareholders vote for the acquisition and the company's shares soared more than 41 per cent, or $9.94, to $33.95 on the Toronto Stock Exchange Monday.

This report by The Canadian Press was first published Dec. 16, 2019.