Why is Cineplex considering a potential sale and who might be a buyer?
Tomas Kauer 
Last week, Canadian movie theatre behemoth Cineplex Inc. said it was considering a sale as part of a strategic review. The Toronto-based company has been around for nearly half a century and owns the majority of the country’s market share. Here, Financial Post unpacks how Cineplex’s entertainment empire grew, how it navigated severe setbacks and who could potentially buy it today.
How did Cineplex start?
Cineplex’s name stems from the historic 18-screen “cinema complex” that opened at Toronto’s Eaton Centre in 1979, said Paul Moore, a sociology professor at Toronto Metropolitan University who studies film history and movie distribution.
It was the largest movie theatre complex in the world, garnering a mention in the Guinness Book of World Records , and revolutionized the movie-going experience with multiple auditoriums, staggered starting times, colour-coded tickets that could be sold in advance and concessions that ranged from popcorn to pastries.
“The idea of a megaplex is, in that way, kind of a Canadian invention,” Moore said, adding that the original Cineplex Corp.’s co-founders, Nat Taylor and Garth Drabinsky, ”figured out a financial model to … (put) 18 independent theaters all in one place, all under one roof.”
Before that, moviegoers could only watch a particular film at a specific theatre, said Toronto-based retail analyst Bruce Winder.
In 1984, Cineplex bought Canadian Odeon Theatres, the second-largest movie theatre chain in the country at the time, forming a new company called Cineplex Odeon Corp. Aggressive megaplex building started in the late 1990s, with the Silver Cities and Colossus megaplexes constructed between 1997 and 2002, Moore said.
How big is Cineplex today and how did it get there?
Cineplex is by far the largest movie theatre chain in Canada.
In 1998, Cineplex and Loews Theatres of Manhattan merged to form the Loews Cineplex Entertainment Corp. but filed for bankruptcy protection in 2001. It was then bought by Canadian private equity firm Onex Corp for $1.3 billion.
In 2003, Galaxy Entertainment Inc. merged with the Canadian assets of Cineplex Odeon Corp. to create Cineplex Galaxy LP, helmed by Galaxy’s co-founder Ellis Jacob. Jacob remained chief executive of Cineplex for more than two decades, up until his retirement this year.
Cineplex also began trading on the Toronto Stock Exchange as an income trust, at $10 per unit, in 2003.
The following year, Onex sold most of the theatre business to a group of buyout firms led by Bain Capital for $2 billion but retained the Canadian division. And in 2005, following its acquisition of Famous Players Ltd., Cineplex Galaxy was renamed Cineplex Entertainment.
In 2011, Cineplex Entertainment transitioned from an income trust to a corporation, Cineplex Inc.
Today, Cineplex operates 1,595 screens across more than 150 movie theatres around the country. The next largest chain in Canada, Landmark Cinemas (owned by Belgium cinema operator Kinepolis Group NV), has just 36 theatres with about 300 screens.
The Cineplex of today also has three eat-and-entertainment brands: Playdium, a family entertainment and arcade chain acquired by Cineplex in 2015; its adult counterpart, The Rec Room: and the Junxion, an all-in-one movie theatre, dining and entertainment complex.
What challenges has Cineplex faced?
In addition to the mountain of debt Cineplex acquired by the early 2000s from its rapid growth, the two major challenges the company faced were the proliferation of video stores, and later streaming platforms such as Netflix, as well as the COVID-19 pandemic, which decimated box-office revenue.
Cineplex reported net annual losses of about $629 million and $248.7 million in its respective 2020 and 2021 annual reports.
Prior to the pandemic, in 2019, United Kingdom-based movie theatre chain Cineworld PLC offered to buy Cineplex Inc. for $2.8 billion (or $34 per share) in a friendly takeover.
However, in June 2020, three months after the pandemic began and both companies suffered heavy losses, Cineworld called off the takeover, citing breaches of the agreement and “material adverse effects.”
Cineplex sued for $2.2 billion, arguing that the agreement included a clause exempting outbreaks of illness. In 2021, Cineplex was awarded $1.2 billion in damages by an Ontario court, however Cineworld filed for bankruptcy the following year.
Michelle Saba, vice-president of communications at Cineplex, said in an email to Financial Post that the company has not received its payment.
In 2023, the Canadian Competition Bureau sued Cineplex for deceptive “drip pricing” tactics over the way its $1.50 online booking fee, which was introduced in 2022, was presented to customers. Cineplex argued that the fee was optional and offered advanced seat selection, and that customers still had the option of buying tickets in person without paying the additional fee. In 2024, the Competition Tribunal ordered Cineplex to pay a penalty of over $38.9 million dollars and legal costs and ordered the company not to engage in such conduct for a period of 10 years.
Cineplex is currently awaiting a decision on whether the Supreme Court of Canada will take an appeal of the case, Saba said.
Why is Cineplex considering a sale?
In September, Cineplex released a memo announcing its board had launched a review of strategic alternatives for the company, including a potential sale, in order to maximize shareholder value at a time of relative strength.
Winder said a strategic review can involve selling all or part of the company, taking on a new partner or starting a joint venture.
“Cineplex has a strong market position, a portfolio of leading entertainment assets, powerful consumer brands, and attractive long-term growth opportunities,” said Phyllis Yaffe, chair of the Cineplex board, in the memo, adding that its current market valuation “may not fully reflect the strength of its business and long-term prospects.”
Now may be an opportune moment for Cineplex, which has been riding the high of several blockbusters this year, such as The Odyssey , to consider its options, Winder said. In its latest quarterly report, Cineplex reported its best second quarter in the company’s history with a profit of $7.8 million.
“They’re probably looking to sell it while they can get a bit of a higher price than they would normally,” Winder said.
However, it’s unlikely Cineplex could draw the same kind of offers that it did in 2019.
“The likely starting point for any initial bid(s) is possibly at a level or within a range that is half of the price finally offered by Cineworld,” National Bank of Canada analyst Adam Shine said in a note to clients. This could mean an initial bid of around $17 a share.
Moore said Cineplex could also be considering a new direction this year, with Jacob retiring and former Landmark Cinemas chief executive Bill Walker taking the helm.
Who could buy Cineplex?
Winder said a private company or a group of private companies banding together could make a bid for Cineplex. Another potential buyer could be an existing competitor, including an international player that wants to expand its global portfolio.
“A long shot would be a company in a totally different vertical who wants to get into the entertainment business,” Winder said. “(Or) it could be a studio, who buys it because they want downward vertical integration.”
Moore offered the example of Paramount Skydance Corporation in the U.S. merging with Warner Bros. Discovery this year, folding television network Home Box Office, Inc. (HBO) into the mix.
He speculated it is possible, though unlikely, something similar could occur with Canadian streaming service Crave, which is owned by the Bell Media subsidiary of BCE Inc, and has been exploring fresh opportunities following the global success of show Heated Rivalry .
Cineplex said no timetable for its strategic review process has been set.
• Email: slouis@postmedia.com
