The deal will also make the Greidinger family the largest shareholders with 25% of the combined entity, and they will take on management leadership of the new group
Moshe (Mooky) Greidinger
Israel’s Greidinger family has agreed to sell the Netherlands based company, Cinema City International (WSE: CCI), which they control and which owns an important chain of multiplex movie theatres in Eastern Europe and Israel. The buyer will be London based Cineworld Group plc. (LSE: CINE), the UK’s only publicly listed cinema chain which is listed on the London Stock Exchange in what will be a combined cash and stock transaction.
In a clever deal for Cinema City International, Cineworld will pay to its shareholders about US$445 million (£272 million) in cash. Cineworld will also issue to them shares representing 24.9% of the merged company, with a value on paper today of about a further US$478 million (£290 million).
The Greidinger family owns a controlling 54% of Cinema City International, through its 88% stake in Israel Theaters Ltd. Once the transaction closes this will then leave the family with effectively a control bloc as the largest shareholder in the newly considerably enlargedCineworl, in what is therefore effectively a partial reverse takeover.
Cinema City International N.V. is one of the largest cinema operators in Israel, Central Europe and Eastern Europe. the Company operates cinemas under the Cinema City brand name in Europe, while in Israel they are known under the brand names Yes Planet and Rav-Chen.
Under the new arrangements Cinema City’s Chairman Moshe (Mooky) Greidinger, who is 61, will become Chief Executive Officer of the combined entity, replacing the current CEO Stephen Wiener. Israel Greidinger, currently the CFO of Cinema City, will become Chief Operating Officer. The current Chairman of the company, Anthony Bloom, will remain as Chairman, and the existing CFO of Cineworld, Philip Bowcock, will also remain in his post as Chief Financial Officer.
Thus the entrepreneurial and business operating reins for the merged company will be very much in the hands of the Greidingers now, and the financial reporting side, and the public company interactions with the investment community, will still be handled by the existing team who likely already do it very well. A very well balanced mixture it would seem moving forward; hitherto the Griedingers have been very low profile investors, so this must be their preferred approach here as well and has their handwriting on it.
The Board of Directors itself will consist of six members from the existing Cineworld Board, together with Mooky Greidinger and Israel Greidinger, and two new non-executive directors: Scott Rosenblum, Cinema City’s current Chairman, and Arni Samuelsson a new independent director.
Cineworld currently operates 886 screens across 102 sites under the Cineworld and Picturehouse brands, of which the majority are multiplex sites with five screens or more. Its portfolio includes five out of the ten grossing cinemas in the United Kingdom and Ireland.
According to a spokesperson for Cineworld, the UK’s only listed cinema chain, the deal, once completed, will create a chain of over 200 cinemas boasting a total of 1, 852 screens, placing them in second place in Europe, only behind the Odeon and UCI Group, a member of the Terra Firma Capital Partners group, who are presently a bit larger with 238 cinemas and 2, 187 screens.
Shareholder approval for the deal will now be sought at a Special General Meeting of Cineworld’s shareholders, now scheduled for January 29th, 2014 and the closing is estimated to take place by the end of March.
Overall, the transaction places a value on Cinema City currently of about US$923 million (£562 million). Cineworld have also announced they are planning to raise a further US$180 million (£110 million) of additional share capital by way of a rights issue, in order to partially finance the purchase. According to a prospectus just issued by the company it intends to offer 48 million shares at about US$3.78 per share (230 pence per share) under an 8-for-25 rights issue, thus permitting their current shareholders the opportunity to either participate in the offering at a large discount to its current market price, or to sell their rights into the marketplace instead if they choose not to participate.
Commenting on the announcement Chairman Anthony Bloom said: “This is an exciting and unique opportunity for Cineworld to offer shareholders enhanced growth prospects and attractive returns via exposure to some of the most promising cinema markets in Europe. Cinema City is an extremely well-run and dynamic business, which creates a platform for further growth in future. Mooky Greidinger will be joining us as CEO – he is a highly respected and very experienced cinema executive who enjoys international recognition.”
Mooky Greidinger himself said the following: “After nearly four decades in the cinema industry building a business from one country to seven, I see an impressive company in Cineworld and a good fit with Cinema City. Together with the rest of the proposed management team I intend to seize this opportunity to bring together two equals in size, both leading players in their respective countries, and lead the resulting business to continuing growth, innovation and dedication to the best possible customer experience.”
Mr. Greidinger also indicates that even after closing the acquisition the chain still has plans to expand their coverage considerably over the next three years, with a total of 548 screens in the planning stages, 170 of them to be situated in the United Kingdom.
A spokesperson for Cineworld stated that expanding into Poland, where Cinema City is already heavily involved, was looked upon as an especially attractive proposition as its economy has been growing much faster lately than most other Eastern European countries. The number of annual cinema visitors in relation to screens available in Poland was around 32, 000, close to twice of that in the UK today.
Cineworld shares closed at US$7.30 per share (445 pence per share) on Friday, on the London Stock Exchange, up 13% on the news of both the acquisition and the rights offering. This is doubly impressive, as both kinds of transaction can sometimes have the opposite effect on a company’s shares. With almost exactly 150 million shares outstanding this now currently values Cineworld itself before the deal closes at over US$1.1 billion (£670 million). Cineworld had been privately held by the Blackstone Group, who bought it in 2004, then took it public with an IPO in 2007, with the company going on the market then at only about half the price which its shares command today. Blackstone then sold their entire interest later in 2010.
48 million shares will be issued by Cineworld under the new rights offering and, in order to give the Cinema City shareholders their 24.9% holding under the deal even after the dilution of the rights offering, a total of 65.5 million shares will be issued to them at closing. Thus once all the dust settles from both transactions there will ultimately then be a total of 263.5 million Cineworld shares outstanding. Hence, if the Cineworld share price continues to hold up at somewhere near its Friday close, the market capitalization of the company’s shares post-acquisition, and post-rights offering, could be as high as about US$1.9 billion (£1.17 billion).
As the majority owners of Cinema City International N.V., the Greidinger family established their cinema business empire originally in Haifa, Israel at a time when it was still under the British Mandate. Moshe Greidinger, grandfather of the company’s current CEO Mooky Greidinger, opened the company’s first cinema in the port city in 1931.