Regal Acquisition of Cineworld in Hot Water as Influential Group Tells Shareholders to Vote Against the Deal

Betty Longbottom [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

The $3.6bn (£2.5bn) offer of Cineworld for the Regal cinema chain in the United States could be in trouble, as ISS, an influential shareholder group, has advised investors to vote against the said deal.

In a voting recommendations document that was seen by reporters, ISS said that a vote against the planned takeover “is warranted based on the significant financial and operation risks related to the transaction.”

Cineworld has suggested a rights issue amounting to £1.7bn in order to raise cash for the takeover, which ISS also told shareholders to reject.

“The transaction as a whole carries significant operational risk, as it relies on the implementation of [Cineworld’s] successful European strategy in the US market, which exhibits different dynamics, by a management team that lacks US-market experience,” wrote ISS.

The group also denounced the “substantial financial leverage resulting from the transaction,” as Cineworld would also be required to take on debt to fund the said deal as well as the recently issued equity. The expanded group, if the deal were able to go ahead, would be levered by about four times its earnings from last year.

The largest 28 percent shareholder of the cinema chain of the United Kingdom, Global City Holdings, a Polish entertainment business holding company, supports the said deal and stated that it would completely underwrite the rights issue.

However, the shares of Cineworld have dropped since the deal was disclosed, and Jupiter Asset Management, one of its shareholders, has also condemned the said deal – Alastair Gunn, a fund manager, said that he had negotiated on getting a firm which was “growing nicely in the UK and Europe” the time that he invested.

Meanwhile, another shareholder representative, Pirc, has supported the said deal. Some analysts also revealed some support for the said move to the United States of America.

“To strike now, when AMC (the US Number One and biggest global cinema operator) is suffering so much, is a brilliant move by Cineworld, in our view, as it reverses the tables and would push it into the challenger position in the world’s largest cinema market,” stated Nigel Parson of Canaccord Genuity when the said deal was announced.

Shareholders are scheduled to vote on the said deal on the 2nd of February.