It could be second time lucky for Cineworld (CINE) as it announces long-awaited international expansion plans. The cinema operator is proposingto merge with the cinema business of Israeli company Cinema City International (CCI:WAR) to become the second largest player in Europe. A £110 million rights issue has been declared with the hope of completing the deal by March. The market applauds the announcement, sending its share price up 3.5% to 405.88p.

Cineworld, which is a running Shares Play of the Week, previously tried to buy a small cinema chain in Spain but the deal was pulled in 2011. Outgoing chief executive officer Steve Wiener told Shares in summer 2012 that the parent group of the target business, Cinesur, got into financial difficulty during the acquisition talks and the cinemas operated without any management. That resulted in a drop in earnings, the business failing to meet Cineworld's bid conditions so the suitor walked.

Today's announcement looks like a more solid transaction. Cinema City has outlets in seven countries including Poland, Bulgaria, Romania and the Czech Republic. It boasts healthy earnings growth and plenty of expansion potential. The statement says the target brings 'attractive growth opportunities in developing economies and markets in which multiplex screen penetration is comparatively low, with low admissions per capita, high population per screen and low average ticket prices.'

Cineworld is buying Cinema City for an enterprise value of £503 million. It will be funded through an eight-for-25 rights issue at 230p, new debt funding and CCI taking a 24.9% stake in Cineworld. Cost synergies totalling £2 million have been identified. CCI's boss Mooky Greidinger will become the chief executive of Cineworld. Existing boss Steve Wiener had already announcedback in November that he would be leaving the business after 18 years as founder and CEO.

'We understand the deal will be earnings accretive by high single digits in the 2014 financial year and by more than 10% in 2015,' says N+1 Singer analyst Sahill Shan. 'On first read this seems a strategically compelling move, which has the potential to secure superior growth for Cineworld shareholders well into the mid-term. Net, our preliminary reaction is positive, but as ever the key will be execution and delivery of the growth opportunity that the transaction represents.'

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Issue Date: 10 Jan 2014