Cineplex seeks more than $2.18B in damages against Cineworld

Following the collapse of their proposed mega-deal, the Canadian exhibitor registered its claim in an Ontario court on Friday, with Cineworld subsequently filing a counter-claim.
Cineplex pic from MiC

Following the collapse of its $2.8-billion acquisition by Cineworld Group, Cineplex has filed a lawsuit seeking more than $2.18 billion in damages.

Cineplex filed the statement of claim on Friday (July 3) with the Ontario Superior Court of Justice, reiterating its position that U.K.-based Cineworld’s termination of the deal represents “nothing more than a case of buyer’s remorse.”

In addition to seeking compensation for the $2.18 billion that Cineworld would have paid upon the closing the deal, Cineplex is seeking compensation for other losses, such as “the failure of Cineworld to repay or refinance Cineplex’s approximately $664 million in debt and transaction expenses.” Cineplex also wants Cineworld to repay certain “benefits” it says Cineworld received as part of the transaction.

A Cineplex spokesperson told Playback Daily that, given all the variables, there isn’t a specific dollar figure for the damages being pursued by Cineplex. Headquartered in Toronto, the company has close to 1,700 screens across Canada and would have expanded Cineworld’s reach to 11,200 screens globally.

For its part, Cineworld had previously stated it pulled the plug on the deal on June 12 after it became aware that a “material adverse effect” had occurred with regard to the Canadian exhibition chain.

Under the terms of the debt-financed deal, first unveiled on Dec. 16, Cineworld agreed to purchase Cineplex at a price of $34 per share. Initially, both parties said they expected the deal to close in the first half of 2020, and approvals from both sets of shareholders as well as the completion of a seven-week “go shop” period were attained quickly, meaning the final hurdle was receiving regulatory approval under the Investment Canada Act.

But, after the COVID-19 pandemic devastated the exhibition sector and forced the closure of theatres across the world, the viability of the transaction was called into question and the completion date for the deal started to be delayed.

“Without any legal right to avoid its contractual obligations, Cineworld intentionally chose to breach its obligations, including its obligation to seek timely regulatory approval for the Arrangement under the Investment Canada Act,” said Cineplex in a statement. The Canadian company added in the statement of claim that “Cineworld’s delays were also designed to allow COVID-19 to increasingly adversely affect Cineplex’s business, so that Cineworld could then (incorrectly) allege that Cineplex itself had breached its contractual obligations.”

Last week, Cineplex issued its first financial report since Feb. 12, with revenues falling by 22.4% to $282.8 million for the period ending March 31. In the Q1 report, Cineplex warned that uncertainties around the future “lend significant doubt about [its] ability to continue as a going concern.” On June 29 the company entered into an amendment agreement with its lenders, through which it will gain access to $250 million in additional financing, a portion of which will be used to repay its debt. Cineplex also said it is exploring a number of financing options, including the sale of assets, as it looks to meet its debt obligation.

Cineworld fires back, intends to file counter-claim

Cineworld, the world’s second-largest cinema exhibitor and owner of U.S. theatre chain Regal Cinemas, fired back on Monday (July 6), saying it intends to file a counter-claim. “Cineworld is entitled to recover from Cineplex all damages and losses that it has suffered as a result of Cineplex’s breaches and the acquisition not proceeding, including its financing costs, advisory fees and other costs incurred. Cineworld intends to counter‐claim against Cineplex for these damages and losses.”

The U.K. company also reiterated its intention to “vigorously defend” the claims against it, adding that it believes the scope of the damages being pursued by Cineplex are larger than is appropriate within the context of the now-collapsed deal.

“In any event, Cineworld believes that Cineplex’s claim, if successful, would be limited to its costs and expenses incurred in relation to the acquisition and would not be assessed by reference to the consideration that was payable under the acquisition,” said Cineworld.

Outside of the failed deal, both companies have been hit hard by the pandemic. The companies both laid off staff in March after the spread of the novel coronavirus resulted in closures of cinemas across the globe. After remaining shuttered for three months, Cineplex started to reopen select theatres across Alberta last week and said it intends to reopen in six more provinces as COVID-19-related restrictions loosen.