(CNBC) Cineworld Group, a British operator of movie theaters, is in talks with Knoxville-based peer Regal Entertainment Group about a potential merger, people familiar with the matter said on Tuesday.
A deal between the two would put the combined company in a better position to take market share from U.S. industry leader AMC Entertainment Holdings, and also give it more scale to fight increasing competition from Netflix Inc, Apple Inc and other digital outlets.
Cineworld's offer values Regal at around $23 per share, one of the sources said. There is no certainty the discussions will lead to a deal, the sources added, asking not to be identified because the discussions are confidential.
Cineworld and Regal Entertainment did not immediately respond to requests for comment.
Regal shares jumped as much as 16 percent after Reuters reported the deal talks. They closed up 7.6 percent at $19.63 in New York, giving the company a market value of about $3 billion. Cineworld has a market value of 1.9 billion pounds ($2.5 billion), making its offer for Regal an attempted reverse merger.
Other movie theater operators' shares also shot higher: AMC rose 8 percent while Cinemark Holdings rose 3.7 percent. Movie technology firm Imax Corp closed up 5.6 percent.
Regal's top shareholder is Anschutz, led by Denver-based dealmaker and billionaire Phil Anschutz. While Anschutz Corp owns just over 10 percent of Regal, it controls the company through a separate class of voting stock.
Regal Entertainment, which owns 561 theaters with 7,315 screens, hired an investment bank in 2014 to explore strategic alternatives, including a potential sale, but later shelved those plans.
Cineworld bought Cinema City to become Europe's second-largest movie theater chain in 2014. It operates 2,049 screens across 221 sites in Britain, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.
Cineworld's largest shareholder is Global City Holdings, a Polish holding company that owns entertainment and real estate businesses in Europe and Israel. Global City owns 28 percent of Cineworld, according to Thomson Reuters data.
The last major deal in the sector was in December 2016, when AMC completed its acquisition of Carmike Cinemas for about $1.1 billion. AMC also acquired Europe's largest theater chain, Odeon, for $1.2 billion last year.