UPDATE 3-Cineworld doubles in size to become new Europe cinema mogul

Fri Jan 10, 2014 12:28pm EST

* British company to buy Cinema City's movie businesses

* Plans to open 548 screens over next 3 years including 170 in the UK

* Cinema City to get 272 mln stg in cash, hold 24.9 pct of Cineworld

* Deal to add to Cineworld's adjusted earnings per share in 2014

* Cineworld shares rise as much as 9.6 pct

By Esha Vaish

Jan 10 (Reuters) - British cinema operator Cineworld Group will buy Poland-based Cinema City International's movie theatre business for just over 500 million pounds, doubling the number of its cinemas to create the second largest chain in Europe.

Cineworld, the UK's only listed cinema chain, said the deal would create a chain of 201 cinemas with 1,852 screens, lagging only private equity-owned Odeon & UCI Group in Europe.

The cash and share offer will leave Cinema City owning a quarter of Cineworld, which is financing the purchase through a mix of shares, debt and a 110 million pound rights issue.

Investors welcomed the deal, pushing Cineworld shares up nearly 14 percent, making them one of the top gainers on the London Stock Exchange. Cinema City shares jumped more than 17 percent in Warsaw.

"Fundamentally, the rationale for the deal centres around access to developing economies in Europe, and for Cineworld to leverage all its know-how in the multiplex market to capitalise on the opportunities in these territories," N+1 Singer analyst Sahill Shan wrote in a note.

Cineworld said it would pay Cinema City 272 million pounds in cash and the Polish company will hold 24.9 percent of its shares.

The deal was based on an enterprise value for Cinema City of 503 million pounds ($828 million) on a debt-free, cash-free basis, Cineworld said in a statement.

To help fund the purchase, Cineworld plans to sell 48 million shares in an 8-for-25 rights issue at 230 pence per share, a 41 percent discount to their closing price on Thursday.

Cineworld shares traded at 445 pence on Friday afternoon on the London Stock Exchange.

The deal is expected to add to adjusted earnings per share in full year 2014 and be substantially accretive thereafter, Cineworld said.

MORE SCREENS PLANNED

Cinema City Chief Executive Mooky Greidinger, who will head the combined company, told Reuters the chain planned to open 548 screens over the next three years.

Greidinger said some of these projects were already underway and 170 of these screens would be in the United Kingdom.

London-listed Cineworld's chief financial officer, Philip Bowcock, said Poland was an attractive market as its economy was growing faster than those of other eastern European countries such as Bulgaria, Slovakia and Romania.

The number of people per cinema screen was around 17,000 in Britain in 2012, while it was nearly double that in Poland, according to data from research firm Dodona.

Cinema City is the largest operator of multiplex cinemas in Israel and central and eastern European countries, according to the company's website. It has a market share of about 35 percent in Poland.

Cineworld has 102 cinemas across the UK and Ireland. The company, previously owned by the Blackstone Group, was floated in 2007.

"The acquisition appears to be a genuine attempt to gain exposure to growth markets, as opposed to simply gaining scale," Peel Hunt analyst Nick Batram said.

Cineworld gained access to arthouse film audience through its acquisition of independent movie theatre operator Picturehouse in 2012.

Cineworld's unlisted British competitor, Vue Entertainment, bought Poland's No. 2 multiplex operator Multikino last year.

Barclays was the financial adviser to Cineworld and was also the joint bookrunner along with JPMorgan Cazenove and Investec. Cinema City was advised by HSBC.

($1 = 0.6074 British pounds) (Writing by Karen Rebelo in Bangalore; Editing by Supriya Kurane and Kirti Pandey)

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