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Cineworld ordered to pay Cineplex CAD $1.28bn in damages
15th Dec 2021 07:09
(Sharecast News) - Cinema operator Cineworld has been ordered to pay Canadian theatre company Cineplex CAD $1.28bn (£751.57m) in damages and lost transaction costs in relation to its proposed acquisition of the Toronto-based firm.
Cineplex alleged that Cineworld had breached its obligations under their arrangement agreement and/or duty of good faith and claimed damages of up to CAD $2.18bn (£1.27bn), less the value of Cineplex shares retained by shareholders.
Cineworld had defended the proceedings, stating it had terminated the arrangement agreement because Cineplex had breached a number of its covenants and counter-claimed against it for damages and losses suffered as a result of the breaches and the acquisition not proceeding, including financing costs, advisory fees and other costs.
However, when the Ontario Superior Court of Justice handed down its judgment it granted Cineplex's claim, dismissed Cineworld's counter-claim and awarded the former damages of CAD $1.23bn (£722.25m) for lost synergies and CAD $5.5m (£3.22m) for lost transaction costs.
Cineworld stated it disagrees with the judgment and will appeal the decision, meaning no damages were expected to be paid due to the ongoing nature of the appeal.
AJ Bell's Russ Mould said: "Cineworld's hunger for growth has come back to haunt it. Pre-pandemic the company had expanded through acquisitions including taking on considerable debt to plant a flag in the US via the purchase of Regal Entertainment. Despite having borrowings up to its eyeballs, Cineworld then chased more growth by striking a deal in December 2019 to buy Canada's Cineplex. That was a bold move, and many people suggested its eyes were bigger than its belly. The timing couldn't have been any worse. The pandemic struck and it looked like Cineworld's only way to survive this crisis was to bail out of the Cineplex deal, given that it had massive debt repayments and suddenly no income.
"It means Cineworld is now facing a CAD $1.2bn bill for damages. This ruling threatens to put significant financial pressure on the business if its appeal is unsuccessful. Ironically the ruling comes three months after an agreement by Cineworld to pay $214.0m to disgruntled Regal shareholders who argued that the £2.7bn acquisition of the US cinema chain in 2018 wasn't done at a fair price. Cineworld is losing credibility fast with investors, having taken too many risks with expansion and paid the price for unscrupulous tactics."
As of 0850 GMT, Cineworld shares had slumped 25.99% to 33.74p.
Cineplex alleged that Cineworld had breached its obligations under their arrangement agreement and/or duty of good faith and claimed damages of up to CAD $2.18bn (£1.27bn), less the value of Cineplex shares retained by shareholders.
Cineworld had defended the proceedings, stating it had terminated the arrangement agreement because Cineplex had breached a number of its covenants and counter-claimed against it for damages and losses suffered as a result of the breaches and the acquisition not proceeding, including financing costs, advisory fees and other costs.
However, when the Ontario Superior Court of Justice handed down its judgment it granted Cineplex's claim, dismissed Cineworld's counter-claim and awarded the former damages of CAD $1.23bn (£722.25m) for lost synergies and CAD $5.5m (£3.22m) for lost transaction costs.
Cineworld stated it disagrees with the judgment and will appeal the decision, meaning no damages were expected to be paid due to the ongoing nature of the appeal.
AJ Bell's Russ Mould said: "Cineworld's hunger for growth has come back to haunt it. Pre-pandemic the company had expanded through acquisitions including taking on considerable debt to plant a flag in the US via the purchase of Regal Entertainment. Despite having borrowings up to its eyeballs, Cineworld then chased more growth by striking a deal in December 2019 to buy Canada's Cineplex. That was a bold move, and many people suggested its eyes were bigger than its belly. The timing couldn't have been any worse. The pandemic struck and it looked like Cineworld's only way to survive this crisis was to bail out of the Cineplex deal, given that it had massive debt repayments and suddenly no income.
"It means Cineworld is now facing a CAD $1.2bn bill for damages. This ruling threatens to put significant financial pressure on the business if its appeal is unsuccessful. Ironically the ruling comes three months after an agreement by Cineworld to pay $214.0m to disgruntled Regal shareholders who argued that the £2.7bn acquisition of the US cinema chain in 2018 wasn't done at a fair price. Cineworld is losing credibility fast with investors, having taken too many risks with expansion and paid the price for unscrupulous tactics."
As of 0850 GMT, Cineworld shares had slumped 25.99% to 33.74p.