Cineworld; the return

It was finally IPO time for Blackstone-backed Cineworld as the UK’s second-largest cinema chain successfully completed a £240m (€353m) initial public offering on the London Stock Exchange.

By the time the books closed the deal was 3.5 times covered and pricing came at 170p. The company sold 61.4m primary shares, representing 43.3% of the enlarged share capital. Private equity group Blackstone saw its 90% stake cut to 53.5%. That could fall further since Blackstone is providing the stock for the greenshoe, which is 15% of the base deal.

One of the problems facing investors was finding a realistic peer in such a consolidated sector. Cineworld is the second-largest group in the UK behind Odeon, with Vue in third place. But both are privately owned.

Most investors focused on the relatively high yield on offer, which turned out to be 5.2% at the 170p level. Cineworld was founded in 1995 and has built 34 multiplexes since then. It operates a total of 72 cinemas with 753 screens and several members of the original management team remain on board, including the chief executive Steve Wiener. In 2006, the company generated £265m in revenues and Ebitda of £46m.

The company launched a £150m IPO last June and came very close to completion. However, it abandoned its plans because of market volatility. Since then, the company has had to sell six cinemas to address concerns raised by the Office of Fair Trading after Cineworld’s takeover of UGC in 2004.

Bankers said the shortened timetable this time round was largely due to the strong support the deal had received from investors in recent discussions. That support turned into orders from very high quality accounts, including many UK small cap funds and hedge funds.

The level of scale-back in the allocation process led to many accounts going into the market on Friday when the shares made their debut on the LSE’s Official List. The shares opened up 11% at 189p and reached a high of 195.25p before easing back to 194p later in the session. JPMorgan Cazenove and Lehman Brothers are joint bookrunners.