Onex Corp. said Monday it has struck a deal to sell its Loews Cineplex Entertainment Corp. theatre business to a group of buyout firms led by Bain Capital for $2-billion.
Toronto-based Onex struck the agreement alongside partner Oaktree Capital Management LLC. Onex shares closed up 8.1 per cent or $1.25 to $16.76 in Toronto.
The two will keep Loews' interest in Cineplex Galaxy, which operates Loews' theatre business in Canada.
Onex's share of the cash proceeds is expected to be about $775-million. The company will continue to own units of Cineplex Galaxy Income Trust, which have a current market value of about $105-million.
Bain Capital is buying the business along with The Carlyle Group and Spectrum Equity Investors.
Onex and Oaktree bought Loews in 2002 when it emerged from bankruptcy proceedings at a time when the industry was still struggling with over expansion and many exhibitors were plagued by financial problems.
Since then, however, the industry has turned a corner, with investment dealer Westwind Partners Inc. pegging the Loews Cineplex price tag at least $1.5-billion based on its ability to generate annual cash flow growth in the double digits.
"Loews Cineplex has been an excellent investment for Onex Corp.," Onex managing director Anthony Munk said in a statement.
"In partnership with management, we successfully restructured the company when we acquired it out of bankruptcy. Since acquiring it we have built it into a leading exhibitor."
As part of the transformation, Onex - which shuttered some Loews theatres, modernized others and restructured the company's debt - also oversaw three acquisitions to bolster the chain's strength in the United States, Mexico and South Korea.
The assets being acquired in Monday's deal include Loews' operations in the United States and Mexico's Grupo Cinemex as well as Loews' 50-per-cent interest in South Korea's Megabox Cineplex and Spain's Yelmo Cineplex.
BMO Nesbitt Burns analyst Peter Sklar described the impact of Monday's deal as neutral to Onex's stock.
"The price is consistent with the value of Onex' interest in Loews Cineplex that we are carrying in out NAV (net asset value) model for Onex," he said in a report.
Onex - which pulled a common-stock Loews initial public offer in October, 2002, because of poor markets - spun off its Canadian theatre assets into an income trust last year.
Loews is now the globe's third biggest movie exhibitor, with 200 theatres and 2,200 screens worldwide.
"Loews is well positioned to capitalize on the industry's steady growth prospects," Bain Capital managing director John Connaughton said.
The sale is expected to close in the third quarter.
Bain Capital is a global private investment firm with more than $20-billion (U.S) in assets under management. The Carlyle Group is also a global private equity firm with more than $18-billion under management, while Spectrum Equity Investors has over $3-billion in capital under management.
Terry Weber