Empire Company Limited has announced that Empire Theatres has reached a definitive agreement with Cineplex Inc. for the sale of 24 theatres and 170 screens in Atlantic Canada and 2 theatres with 48 screens in Ontario. Empire Theatres has also reached a separate definitive agreement with Landmark Cinemas for the sale of 20 theatres and 179 screens in Ontario and Western Canada.
Paul D. Sobey, President and CEO of Empire Company Limited stated, “The decision to sell the business of Empire Theatres was a very difficult one as it has a long history with our Company and is a great business with excellent employees who have worked hard over many years to build an attractive entertainment destination.
“The decision, however, aligns with the strategic direction of the Company to focus our resources on our food retail business through our 100 percent interest in Sobeys Inc. and on our related real estate investment through our 42.8 percent ownership interest in Crombie REIT.”
The purchase price for the Cineplex transaction is $200 million to be paid in cash, subject to certain adjustments to be made at closing.
The purchase price for the Landmark transaction is approximately $55 million subject to certain adjustments to be made at closing, with the purchase price to be paid as follows: $31 million in cash on closing; $19 million in equity; and an earn out right which management estimates has a potential value of approximately $5 million. Upon closing, the assets will be held by a new entity with Empire Theatres’ equity being the controlling interest. The new entity will be consolidated into the Company’s financial statements, including $30 million of debt in the new entity. Landmark will manage the business and have a right to buy out Empire Theatres’ equity interest for $19 million in cash until December 31, 2013, following which Empire Company can agree to sell its equity interest in the entity and require Landmark to sell on the same terms.
Closing of the transactions is subject to satisfaction of customary conditions and relevant regulatory approvals, which includes approval from the Competition Bureau. Closing of each transaction is expected to occur by late summer of 2013. Empire Theatres is not obligated to close either transaction without closing the other.
On closing, the Company expects to receive cash of approximately $216 million after adjustments and expenses, and intends to utilize these proceeds for debt repayment. The Company expects to record a net pre-tax gain on the two transactions of approximately $75 million.