Regal Entertainment in talks for possible merger with Cineworld

Knoxville-based Regal Entertainment Group has confirmed it is in talks about a possible sale to London-based theater chain Cineworld Group PLC.

Regal, one of the largest theater chains in the country, is considering an all-cash acquisition at a price of $23 per share, according to a company statement Tuesday.

The takeover bid is worth a reported $3.6 billion.

"No agreement has been reached, and there is no assurance that any transaction will result," the statement reads.

Cineworld posted a lengthy statement for shareholders about the possible merger on its website Wednesday.

“Cineworld would only proceed with the potential transaction in circumstances and on terms which it believes would be accretive to shareholder value. … The potential acquisition of Regal would provide Cineworld with a highly attractive platform in the world's largest cinema market,” the statement says.

Regal spokesmen did not return calls for comment Wednesday.

Regal saw a decline in its third-quarter revenues over last year. Total revenues for the period ending Sept. 30 were $716 million compared with $811 million in 2016.

Regal shares have slumped 21 percent this year, while the top movie chain, AMC Entertainment Holdings Inc., fell 58 percent, according to Bloomberg.

Regal announced last month it would begin testing demand-based pricing for films, according to Bloomberg News, which cited CEO Amy Miles' quarterly call with analysts.

The company said it would work with the app maker Atom Tickets LLC to test the idea in early 2018 with the hopes that it could boost revenues, Bloomberg reported.

South Waterfront plan

Regal is preparing to move to its new headquarters as part of a city-backed project on the former site of Baptist Hospital on the South Waterfront. Its plans had called for it to open there before the end of this year.

The city helped put together a $12.5 million incentive package for Regal's move into the nine-story, 178,000-square-foot building. The city put approximately $9 million into the project, while the state and Knox County both added approximately $1.5 million.

Per the agreement, Regal is to lease the building from the city. 

Chief Policy Officer and deputy to Mayor Madeline Rogero, Bill Lyons, said Regal hasn't contacted the city about any news that it would be leaving Knoxville and the nearly finished headquarters building.

Lyons did say, however, the city has built-in assurances to protect it from a possible business change like a steep rent hike if the building is no longer considered Regal's headquarters and/or the company fails to meet employee projections.

The contract between the city and Regal is for 10 years with two 10-year extension options. According to the contract, Regal pays no rent the first 10 years, then rent of $178,000 a year through years 11-20 and $356,000 a year for years 21-30 if Regal opts to activate those years.

Regal does pay a payment in lieu of taxes amount of approximately $45,000 the first year. For subsequent years, the payment continues at the amount determined by the tax assessor, Lyons said.

According to the contract, if Regal fails to employ 275 full-time workers or if the building is no longer the company's headquarters, the rent goes up to $1.78 million a year for years zero through 10, $1.95 million a year for years 11-20 and $2.13 million a year for years 21-30. 

The city can terminate the lease if the company either no longer uses the building as its headquarters for six consecutive months or does not employ 275 full-time employees for six consecutive months.

The terms of the contract apply if Regal merges with another company, according to the documents. There is not an automatic right of termination, according to Lyons. 

Regal's importance

Regal Entertainment is a key anchor for Knoxville, Lyons said.

"It’s obviously important to have a company such as Regal or a major creative company with visibility internationally in a city, and there are other benefits that flow from that," he said.

The South Waterfront Vision Plan was adopted in 2006, according to the city's website, and describes a long-term improvement strategy for an approximate 750-acre area fronting the 3-mile shoreline of the Tennessee River, directly south of downtown and the University of Tennessee.

The idea was to create public-private partnerships by funding, at least in part, public improvements in support of private redevelopment projects. A riverwalk for pedestrians and bicyclists along the shoreline, parks and other green spaces, new and reconstructed streets, and a pedestrian/bicycle bridge connecting the South Waterfront to the campus are among the planned improvements.