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Cineplex takeover ‘does not impact Scene’ program, company says

Oakville, Ontario, Canada - May 20, 2019: Sign of Cineplex Cinemas in Oakville, Ontario, Canada. Cineplex Cinemas operated by Cineplex Inc. a Canadian entertainment company.

Shares of Cineplex Inc. (CGX.TO) skyrocketed as much as 42 per cent on Monday after it agreed to be purchased by U.K-based Cineworld Group for $2.8 billion.

Cineworld has agreed to acquire the Toronto-based entertainment company for $34 per share, a 42 per cent premium to Cineplex’s closing price on Friday. The transaction is valued at $2.8 billion, including the assumption of net debt, and will largely be financed by debt.

Shares of Cineplex, which operates 165 theatres in Canada, closed on the Toronto Stock Exchange at $33.95, a jump of more than 41 per cent.

“We believe this transaction today is both financially compelling and in our shareholders best interest," Cineplex chief executive Ellis Jacob said in a statement Monday. "The entertainment industry continues to transform and we are pleased that through this agreement we are ensuring Cineplex is part of the next era of global entertainment."

Cineplex stock closed the day Monday up more than 41 per cent.

Cineworld said it hopes to combine Cineplex, Canada’s largest movie theatre chain, with its U.S. business Regal to create the leading North American cinema operator “with unrivalled scale and opportunity.”

“The acquisition of Cineplex strengthens our belief in the theatrical business, one of the most affordable out-of-home forms of entertainment,” Cineworld chief executive Mooky Greidinger said in a statement released Monday.

Cineplex has diversified its operations in recent years amid an evolving entertainment market that has been upended by the surging popularity of streaming services. The company has expanded into other entertainment-related businesses, including Rec Room, a chain of restaurants that includes arcade games, and Playdium, a chain of arcade-style amusement facilities.

Adam Shine, an analyst with National Bank of Canada, said in a note released to clients Monday that the purchase “is welcome news as its next chapter inevitably had it being part of a larger entity.” National Bank had speculated about a takeover of the Cineplex business 16 months earlier, he wrote, with a Canadian telecommunications company being floated as a potential buyer. However, no offer materialized amid other spending priorities in the telecom space, such as spectrum auctions.

“At this point, Cineworld’s offer appears more than fair,” Shine said.

“It will be interesting to see if Cineworld opts to divest any of the pieces of Cineplex in the future.”

What about the Scene loyalty program?

Cineplex said that Monday’s announcement would not impact the company’s Scene partnership, a popular loyalty program operated through a joint venture between Cineplex and Scotiabank. It is unclear what Cineworld aims to do with the loyalty program, should the deal close. According to a news release, the Scene program currently has approximately 10.1 million members.

“Today’s announcement does not impact Scene and it will proudly remain Cineplex’s loyalty program. Our guests’ ability to earn and redeem Scene points at Cineplex, Playdium and The Rec Room remains unchanged,” Cineplex spokesperson Sarah Van Lange said in an emailed statement.

“Regardless of the outcome, our existing firm, legally binding agreements would not change.”

Scotiabank spokesperson Patricia Hsiung reiterated that Monday’s announcement has no impact on Scene members or the program itself.

“We’re proud of Scotiabank’s partnership with Cineplex and the Scene program,” she said in an emailed statement. “It is business as usual for us and we look forward to continuing to work with Cineplex under any new potential ownership.”

Patrick Sojka, founder of RewardsCanada.ca, said he doesn’t expect any changes to the Scene program in the near term. Any potential changes down the road will depend on how Cineworld will want to operate Cineplex, and whether it wants to make any major changes.

“If Cineworld is going to run Cineplex as is, I don’t think we’ll see any changes to the loyalty program,” Sojka said in an interview with Yahoo Finance Canada.

“However, if Cineworld wants to change the way Cineplex is operating and the way they run, there is a potential to make Scene more like the program they have in the U.K... Time will tell.”

Cineworld operates a program called Unlimited, which is a subscription-based program that allows customers to watch an unlimited amount of 2D films for a monthly price. Unlimited customers also get discounts on food, drinks and tickets to 3D and IMAX films, similar to the Scene program.

While the deal is expected to close in the first half of 2020, the agreement allows Cineplex to shop around for other potential buyers over a period of seven weeks. If Cineplex does find another buyer, it would have to pay a termination fee to Cineworld.

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