Cineworld shares plummet on prospect of takeover-related rights issue: Here’s how analysts are reacting

Cineworld’s shares have taken a huge knock this morning, as investors were spooked by the prospect of a new rights issue.

The cinema operator confirmed that it was in “advanced discussions” to acquire US rival Regal, and that it would fund the potential deal through a mixture of debt and equity generated from a new rights issue.

Read more: A deal for the silver screen: Cineworld confirms it’s in talks to buy US rival Regal for $3.6bn

Shares dropped more than 14 per cent in early trading as existing investors seemed less than convinced, even though Cineworld’s largest shareholder said it would fully support the rights issue. But analysts, on the other hand, were generally positive.

What the analysts said

“To strike now, when AMC (the US Number One and biggest global cinema operator) is suffering so much, is a brilliant move by Cineworld, in our view, as it reverses the tables and would push it into the challenger position in the world’s largest cinema market,” said Canaccord Genuity’s Nigel Parson.

“We sense the rationale is both strategic and financial as well as opportunistic, given the Regal share price has been under pressure in recent months due to weak US cinema attendance newsflow,” said N+1 Singer’s Sahill Shan.

“We expect Cineworld management to replicate the success it has had in the UK by upgrading the Regal chain on a selective basis and also driving financial synergies.

The deal to our mind is in keeping with the wave of consolidation currently occurring in the cinema industry. We await further information on the deal but see the merits of the move.

Just last month, Cineworld entered Panmure Gordon’s “conviction list” of top stocks to buy. “The balance sheet is becoming inefficient and we envisage £250m of merger and acquisition firepower,” said analyst Mark Irvine-Fortescue in October.