UK cinema giant backed out of a $2.8 billion acquisition agreement, prompting Canada's dominant movie theatre chain to initiate legal proceedings
UK theatrical giant Cineworld Group PLC has backed away from its takeover of Canada’s Cineplex Inc., setting the stage for a legal battle.
Cineworld made a friendly takeover bid last December, offering $2.8 billion for the cinema chain, which owns 165 theatres across Canada, The Rec Room and Playdium and has a near-monopoly over the exhibition business in the country.
The Cineworld offer, at $34 per share, was a 42 per cent premium over Cineplex’s stock price at the time, around $24. As a result of the acquisition terms, Cineplex’s stock price shot up to around $34, but then came crashing down to below nine dollars when the COVID-19 pandemic forced the chain to close its doors. The stock has since risen to about $16 before Cineworld backed out on Friday.
A statement from Cineworld claims the company terminated the acquisition due to breaches of the agreement at Cineplex. Cineworld did not offer specifics.
One stipulation in the acquisition agreement states that Cineplex could not exceed a debt of $725 million. The Canadian company had a $625 million debt at the end of 2019.
In a statement, Cineplex “vigorously” denied breaching the agreement and described Cineworld’s termination as “buyer’s remorse.” Cineplex’s intends to “promptly” commence legal proceedings.
According to Cineplex, Cineworld’s termination notice alleges that Cineplex “failed to operate its business” as the reasoning for walking away from the deal.
“The Arrangement Agreement explicitly excludes any ‘outbreaks of illness or other acts of God’ from the definition of material adverse effect,” the statement reads, adding that the legally mandated closure during the COVID-19 pandemic falls under that protection.
The theatrical business has taken a huge hit globally, with planned re-openings remaining uncertain. Christopher Nolan’s mysterious new thriller Tenet was expected to be the major movie re-opening business on July 17. That title has been delayed to July 31.
Cineworld, which owns the Regal cinema chain in the U.S., is the second-largest theatrical exhibition company in the world, after China’s Wanda. The latter owns AMC Theatres, which is reportedly verging on bankruptcy. Wanda has dismissed those reports as “pure rumours.”
Many in the Canadian film industry are breathing a sigh of relief that the Cineworld deal is falling apart.
Film industry sources who did not wish to be identified told NOW they are wary of a foreign company controlling theatres in Canada.
They worry foreign ownership would pose a threat to local films making it to big screens. For example, a foreign booker with no commitments to local culture could make the already rare experience of seeing Canadian films in Canadian cinemas obsolete.
Reached for comment, a Cineplex spokesperson said company reps are not able to comment further as the matter is now before the courts.