Knoxville-based Regal had been looking for buyer long before Cineworld came along

Regal Entertainment Group has been looking for a buyer since at least October 2014, as executives foresaw online movie distribution and shorter theatrical release times might shrink movie theaters’ profits.

The rationale is presented in a Dec. 22 Securities & Exchange Commission filing. On Dec. 5, Knoxville-based Regal and European chain Cineworld Group announced Cineworld would buy Regal in a $5.9 billion deal, including assumption of Regal’s debt.

That means $23 per share of Regal stock, a premium of 43.2 percent over Regal’s 30-day stock price average.

Regal’s board of directors explained they can’t be assured of similar movie attendance or financial performance in coming years.

“In recent years, the Board and senior management have considered a variety of industry trends, including trends relating to industry consolidation, in-theatre dining, increased investment by theatre exhibitors in areas such as remodeling of theatres, new in-theatre technologies, luxury recliners, expanded concession offerings and film release windows,” the SEC Form 14C says. “In addition, the Board and senior management have considered risks to the business posed by new technologies that could disrupt the existing film distribution model (such as digital sell-through and premium video on demand) and risks posed by movie studios decreasing the theatrical release window or bypassing theatrical release altogether, as well as potential limitations on the Company's ability to generate long term incremental value through operational improvements, investments in new technologies and customer amenities.”

Regal is the second-largest U.S. theater chain, with 18 percent of the $11.2 billion market. The largest U.S. chain, AMC Entertainment Holdings, has 20 percent. Regal Entertainment Group has 561 theaters in 43 states, Guam, Saipan, American Samoa and the District of Columbia. Thirteen Regal theaters are in Tennessee.

Regal’s third-quarter revenues, announced Oct. 24, were $716 million – down $95.5 million from the same quarter in 2016. The company’s stock price slumped 21 percent this year, while AMC’s has declined 58 percent, according to Bloomberg.

Regal is to survive as a wholly-owned indirect subsidiary of Cineworld, according to the merger plan filed with the Securities & Exchange Commission. The purchase isn’t expected to affect Regal’s agreement with the city to move its main office into a 9-story building at 101 E. Blount Ave. on Knoxville’s redeveloping South Waterfront.

“We are working towards completing the merger as soon as possible,” the latest SEC filing says. “Assuming timely satisfaction of necessary closing conditions, we currently anticipate that the merger will be consummated by the end of the first quarter of 2018.”

Regal has a “go-shop” period until Jan. 22 to find a better offer, but that’s not likely considering past efforts. Company executives began looking into a possible sale in October 2014, retaining Morgan Stanley for advice. Three months later there were no takers, despite reaching out to 71 potential buyers, according to the filing.

Prospective buyers agreed with Regal’s assessment of its financial future. They also worried that buying Regal would cost too much, and that not much savings could be generated by efficiencies.

Starting in 2014, Regal discussed a sale with a potential buyer identified only as “Party X,” but those talks came to nothing.

“Party X was unwilling to engage in any acquisition that paid a premium to the Company's stockholders,” the SEC filing says. “As a result, the parties' discussions focused almost exclusively on a merger of equals transaction.”

But on July 18, Israel Greidinger met with representatives of Anschutz Corp. The Greidinger family is Cineworld’s largest shareholder, owning 28 percent of the company; while Anschutz Corp., a private holding and investment firm in Denver, Colorado, controls two-thirds of Regal shareholders’ voting power.

That led to offers and counteroffers, starting Aug. 30 with Greidinger’s offer of $20.50 per share, and ending Nov. 1 at $23. Three days later, Regal’s board unanimously agreed.

Barclays Bank PLC, HSBC Bank PLC and Investec Bank PLC agreed to underwrite the deal, for which Cineworld expects $4.3 billion in financing.

Cineworld Group has 232 theaters in nine European countries and Israel. It expects merger with Regal to result in a $150 million benefit by the end of 2019, including $60 million in cost reduction, according to its projection for investors.