Regal Entertainment is in sale talks with British movie theater owner Cineworld

Shares of Regal Entertainment Group, the nation’s second-largest cinema owner, surged Tuesday amid reports that the company was in talks to sell to a British movie theater chain.

Knoxville, Tenn.-based Regal is in discussions to sell to London-based Cineworld Group Plc for $23 a share in an all-cash deal, Regal said in a brief statement after markets closed.

“No agreement has been reached, and there is no assurance that any transaction will result,” Regal said.

Regal’s stock rose $1.39, or 8%, to $19.63 a share after media reports earlier in the day said the two were discussing a possible sale. The deal would value the company at $3.6 billion.

A spokeswoman for Cineworld declined to comment on the talks, which were first reported by Reuters.

Regal, controlled by billionaire Philip Anschutz, did not say why it was entertaining a deal. Anschutz’s AEG also owns L.A. Live, the downtown Los Angeles entertainment complex that houses a major Regal movie theater.

A combination of the two companies could put them in a position to better compete with China-owned cinema giant AMC Entertainment, which is the world’s largest theater operator. Greater size could also help the combined company survive an increasingly tough environment for theater chains grappling with long-term declines in admissions and rapid changes in consumer behavior.

Still, it’s not clear whether a deal will materialize. Regal announced three years ago that it was considering options, including a potential sale, but no sale occurred.

Analyst Michael Pachter of Wedbush Securities said Regal would not likely accept an offer of $23 a share, which is close to what shares were trading at earlier this year.

“I don’t believe Regal management is throwing in the towel,” Pachter said. “The rumors that millennials aren’t going to the movies because they’re watching Netflix are greatly exaggerated.”

A merger of Regal and Cineworld would be the latest consolidation in the exhibition industry.

AMC Entertainment, owned by China’s Dalian Wanda Group, last year bought Carmike Cinemas for $1.2 billion, allowing the Leawood, Kan.-based operator to surpass Regal as the nation’s largest cinema operator. AMC has also bought London-based Odeon & UCI Cinemas Group, and Nordic Cinema Group to expand its international presence.

Worldwide, AMC now has about 1,000 theater locations. Regal owns 561 cinemas in the U.S., while Cineworld operates 226 sites in Britain, Ireland and other countries.

U.S. cinema owners struggled this year as multiple high-profile films flopped. Ticket sales in the U.S. and Canada are down 4% from the same time a year ago, according to ComScore.

Regal’s profit dropped 73% to $11 million during the three months ended Sept. 30 compared to the same period last year.

Investors have been spooked by the glum news, depressing shares of theater stocks. Meanwhile, film studios have been exploring ways to show movies in the home closer to their theatrical release, but the proposal has long faced resistance from theater owners.

Regal Chief Executive Amy Miles has disputed the idea that the industry is in trouble.

“Many pundits have deduced that the summer box office shortfall was caused by some underlying broad-based change in consumer behavior,” Miles told analysts last month. “To put it bluntly, we simply don’t see that.”

Miles instead attributed the box office slump to short-term fluctuations based on a weak crop of movies. Like AMC, Regal has been renovating theaters with recliner seats and improved food options to keep customers coming.

The industry has high hopes for the Dec. 15 release of “Star Wars: The Last Jedi,” from the Walt Disney Co. The sci-fi fantasy movie is expected to collect $180 million to $200 million in ticket sales in the U.S. and Canada in its opening weekend.

ryan.faughnder@latimes.com

@rfaughnder