By Liana B. Baker and Ben Martin
NEW YORK/LONDON (Reuters) - Cineworld Group (LON:CINE) Plc, a British operator of movie theaters, is in talks to acquire U.S. peer Regal Entertainment Group for approximately $3.6 billion (2.7 billion pounds) in cash, the companies said on Tuesday.
A deal between the two would put the combined company in a better position to take market share from U.S. industry leader AMC Entertainment Holdings Inc, and also give it more scale to fight increasing competition from Netflix Inc (NASDAQ:NFLX), Apple Inc (NASDAQ:AAPL) and other digital outlets.
Regal said in a statement that Cineworld's all-cash offer values it at $23 per share, confirming an earlier Reuters report. No agreement has been reached and there is no assurance that any transaction will result, Regal added.
Cineworld added in a separate statement released later that it was in advanced discussions to acquire Regal and was finalizing due diligence on its offer.
Cineworld said it would finance its bid through a "mixture of incremental debt and a material equity raise by way of a rights issue, including a commitment to full subscription" from its largest shareholder, Global City Holdings.
Global City Holdings is a Polish holding company that owns entertainment and real estate businesses in Europe and Israel. Global City owns 28 percent of Cineworld, according to Thomson Reuters data.
Regal shares jumped as much as 16 percent after Reuters reported the deal talks. They closed up 7.6 percent at $19.63 in New York, giving the company a market value of about $3 billion. Cineworld has a market value of 1.9 billion pounds.
Other movie theater operators' shares also shot higher; AMC rose 8.4 percent to close at $16.15 while Cinemark Holdings rose 3.7 percent to $36.19. Movie technology firm Imax Corp closed up 5.6 percent at $26.40.
Regal's top shareholder is Anschutz Corp, led by Denver-based dealmaker and billionaire Phil Anschutz. While Anschutz Corp owns just over 10 percent of Regal, it controls the company through a separate class of voting stock.
Regal Entertainment, which owns 561 theaters with 7,315 screens, hired an investment bank in 2014 to explore strategic alternatives, including a potential sale, but later shelved those plans.
Cineworld bought Cinema City to become Europe's second-largest movie theater chain in 2014. It operates 2,049 screens across 221 sites in Britain, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.
The last major deal in the sector was in December 2016, when AMC completed its acquisition of Carmike Cinemas for about $1.1 billion. AMC also acquired Europe's largest theater chain, Odeon, for $1.2 billion last year.