Why Cineworld Shares Edged higher on the Elliott Management Bid

The Cineworld Group plc (LON: CINE) share price edged 9.57% after news broke that activist investor Elliott Management had submitted a bid for the cinema chain’s Eastern European and Israel operations while skipping the US and UK operations.

The news did not trigger a substantial reaction from investors since Elliott Management’s bid did not include the US and UK businesses, which form the largest part of Cineworld’s operations. Bidders seem uninterested in the UK and US units primarily due to several factors I’ll outline below.

First, the US and UK markets are mature movie theatre businesses. One might even argue they are in a secular decline as competition from movie streaming services that have attracted moviegoers away from theatres. 

Unlike when cinemas monopolised blockbuster movie releases, production companies now own movie streaming services. They tend to release some of their biggest movies through their streaming services, where they can earn monthly recurring revenues. 

The leading movie production companies like Disney have launched top-rated movie streaming services, now directly competing with movie theatres for viewers. The growing popularity of these services poses a significant threat to traditional movie theatres. 

On the other hand, eastern European countries such as the Czech Republic, Bulgaria, Romania, Hungary, and Slovakia have growing movie theatre industries, and the number of moviegoers is increasing. The same logic applies to Isreal, which is why most bidders are interested in these assets. 

However, Cineworld has consistently reiterated that it does not want to sell pieces of the company. The firm is keen to keep its operations intact if it cannot find a buyer interested in acquiring its entire business. Therefore, it is doubtful that the movie theatre company will willingly sell parts of its business unless its creditors insist. 

Cineworld operates under its brand name in the  UK and owns the Picturehouse cinema franchise. The company also owns Regal Cinemas in the US and is the second-largest movie theatre chain worldwide. 

Anything is possible now as Cineworld runs the auction process alongside the restructuring negotiations with its creditors. 

*This is not investment advice. 

Cineworld share price. 

The Cineworld share price edged 9.57% higher to trade at 2.52p, from Friday’s closing price of 2.30p.