Richard Gelfond, chief executive at Imax Corp., said Tuesday that “it makes a lot of sense” for British theatre behemoth Cineworld to buy Cineplex Inc., giving the Canadian cinema chain more clout in Hollywood.
The agreement, announced on Monday, would see Cineworld acquire Canada’s dominant cinema chain for $34 per share in a deal worth $2.8 billion, including debt. That price rectifies the market’s recent undervaluation of Cineplex, according to Gelfond, whose role as a purveyor of both film production equipment and projection technology has left him well acquainted with the movie theatre and studio businesses.
Imax, a global entertainment brand founded in Canada, licenses its projection and sound systems to theatres in 81 countries, including to Cineworld and Cineplex. But it also works with filmmakers to use high-resolution Imax cameras or to remaster footage shot on other cameras.
“For Cineplex, the market really didn’t appreciate the underlying value of those assets,” Gelfond said of Cineplex’s network. With a glut of new streaming services, Cineplex has tried to diversify its mix, rolling out premium screening options that can’t be replicated in a living room while also expanding into the broader entertainment business with its line of Rec Room pub-arcade hybrids.
But in two years, Cineplex shares have plummeted by more than 40 per cent, to $24 on Friday from a peak of roughly $54 in 2017, before shooting up to just shy of the $34 offer after Monday’s announcement.
“I think (Cineplex CEO Ellis Jacob) and the management were frustrated,” Gelfond said. “So I think it’s really good for the Cineplex shareholders that they were able to realize their true value.”
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Cineworld says the deal would make its empire of theatres the biggest in North America, bumping its total screen count to 8,900 — enough to beat out the current leader, AMC Theatres. But the agreement needs to pass a series of hurdles first, including a seven-week period during which Cineplex can shop for competing bids. If none materialize, the deal will then need to get shareholder support on both sides, as well as regulatory approval.
“It’s smart for all sides,” Gelfond said. “Consolidating the entities … should give it additional clout in Hollywood.”
Film studios are starting to consolidate, with Disney buying 21st Century Fox in a US$71 billion deal last year. So as studios get bigger, theatre chains should keep pace to “maintain an equilibrium,” Gelfond said, since exhibitors have to negotiate with a studio before each film is released. Those negotiations are about money, but also how many screens the movie can run on and when it opens.
“It’s just better to match the strength on the other side of the table,” Gelfond said, “It’s good to be bigger.”