Cineworld has responded to press speculation confirming that it is in advanced discussions with Regal Entertainment Group in the USA re a possible cash offer. The proposed price is $23 implying a market cap of c.$4bn - so effectively a reverse takeover. Funding will come via a mixture of debt and a “material equity raise by way of a rights issue”, with management (who own 28% of the equity) committed to invest in the fund raise. The deal would equate to a c.9x FY18 EV/EBITDA which is a c.5% discount to the sector average. We sense the rationale is both strategic and financial as well as opportunistic given the Regal share price has been under pressure in recent months due to weak US cinema attendance newsflow. The deal, if successful would give Cineworld access to the largest cinema market. Regal is the 2nd largest player in the US market with c.560 cinemas. We expect Cineworld management to replicate the success it has had in the UK by upgrading the Regal chain on a selective basis and also driving financial synergies. The deal to our mind is in keeping with the wave of consolidation currently occurring in the cinema industry. We await further information on the deal but see the merits of the move, albeit our expectation was that the next big corporate move by management would be in Europe.