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Cineplex selling Player One Amusement Group business for $155 million

TORONTO — Cineplex Inc. is selling its arcade game business to an international investment company for $155 million in cash.
Cineplex Inc. has signed a deal to sell its Player One Amusement Group business to OpenGate Capital for $155 million in cash. A Cineplex Odeon theatre in Toronto is shown on Monday, Dec. 16, 2019. THE CANADIAN PRESS/Aaron Vincent Elkaim

TORONTO — Cineplex Inc. is selling its arcade game business to an international investment company for $155 million in cash.

The Toronto-based theatre giant announced Wednesday that OpenGate Capital has bought its Player One Amusement Group business, which sells, distributes, operates and services arcade games and other equipment.

Under the deal, Player One has signed a long-term agreement to continue to supply and service games in Cineplex's theatres and location-based entertainment venues, including its Rec Room and Junxion venues.

Cineplex positioned the deal as a way to unlock "tremendous value" for the company and its stakeholders while alsoboosting its debt repayments.

"As we continue to focus on our growth plan, the strategy to divest P1AG came at an opportune time to strengthen our balance sheet,” Ellis Jacob, Cineplex's president and chief executive, said in a statement.

In its latest quarterly financial results, Cineplex reported its long-term book value debt totalled $814.8 million as of Sept. 30, including roughly $267 million in convertible debentures.

Debt repayment has been difficult because the COVID-19 pandemic temporarily closed many theatres, hampering revenues, and the company spent much of the period grappling with the fallout from its failed sale to U.K. theatre company Cineworld Group PLC. 

The scuttled $2.8 billion deal wound up in a court battle meant to decide whether Cineworld had the right to walk away from the transaction. A judge sided with Cineplex, but Cineworld made an appeal before it filed for bankruptcy in the U.S. Cineplex has since said it does not expect to meaningfully recoup its costs.

However, the company has had some good fortune in recent months. "Barbie" drove massive audiences to the cinema chain over the summer and the fall brought the release of popstar Taylor Swift's concert movie.

Many believe "Aquaman and the Lost Kingdom," "Napoleon," "Wonka" and "Renaissance: A Film by Beyoncé" will help Cineplex end 2023 on a high.

In the new year, Cineplex expects its Player One deal to close in its first quarter, subject to regulatory approvals and other customary closing conditions. 

Drew McReynolds saw the transaction as a way for Cineplex to "de-lever" its business and said it could signal a shift in the company's approach.

"Operationally, we expect the transition from a vertically integrated amusement strategy across the Cineplex ecosystem to an outsourcing arrangement under long-term agreement to be seamless," the RBC Dominion Securities Inc. analyst said in a Wednesday note to clients.

He added that the deal indicates there has been "value creation" at the arcade business.

Player One's history dates back to 2012, when Cineplex formed Cineplex Starburst Inc. as a 50/50 joint venture with Starburst Coin Machines Inc., a distributor and arcade game supplier.

By 2015, Cineplex had acquired the remaining half of the business and in 2016, Player One was formed through a merger with six related companies.

These days, the company has amassed 37,000 pieces of equipment serving 3,800 locations. Its website also says it has 19 offices and roughly 500 employees.

This report by The Canadian Press was first published Nov. 22, 2023.

Companies in this story: (TSX:CGX)

Tara Deschamps, The Canadian Press