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Cineworld Group will become the largest box office theatre operator in North America, and one of the largest in the world, with the acquisition of Canada's Cineplex Inc, announced on December 16, 2019. (Photo: CIneworld Group)

Cineplex vows to take legal actions against Cineworld

Cineworld Group will become the largest box office theatre operator in North America, and one of the largest in the world, with the acquisition of Canada's Cineplex Inc, announced on December 16, 2019. (Photo: CIneworld Group)

Cineplex Inc has begun legal proceedings against Cineworld Group Plc after the latter backed out of a deal that would have created the biggest operator of movie theaters in North America.

Toronto-based Cineplex is seeking damages including the CN$2.18 billion (US$1.61 billion) Cineworld would have paid to buy the company, minus the value of Cineplex securities retained by its holders.

One of Cineplex Inc’s adults-only theatre with personal food service. (Photo: Financial Post)

It also wants to be compensated for other losses, including Cineworld’s failure to repay or refinance Cineplex’s CN$664 million in debt and transaction expenses.

Last month, Cineworld scrapped the acquisition saying Cineplex breached the terms of the merger agreement and was unwilling to correct the situation. It pointed to a deterioration of Cineplex’s business amid the coronavirus (COVID-19) pandemic.

But Cineplex dismissed that argument, saying London-based Cineworld is the one that breached its obligations.

“Toronto-based Cineplex is seeking damages including the CN$2.18 billion (US$1.61 billion) Cineworld would have paid to buy the company, minus the value of Cineplex securities retained by its holders. “

“The contractual agreements between the parties expressly exclude outbreaks of illness, such as the COVID-19 pandemic, as a circumstance entitling Cineworld to terminate the arrangement,” Cineplex said in a statement Friday. “Cineworld intentionally chose to breach its obligations, including its obligation to seek timely regulatory approval for the arrangement under the Investment Canada Act.”

The coronavirus health crisis shuttered movie theatres across the world including Cineplex’s operations. Earlier this week, it reported a loss of CN$178 million for the first quarter. The company acknowledged that the business will take a long time to recover from the pandemic.

The Cineplex Odeon Theatre at Yonge and Eglinton in Toronto, Canada.
(Photo: The Globe and Mail)

Cineplex struck an agreement with lenders to relax financial covenants as it deals with an uncertain future after the failed takeover. Lenders will require it to raise CN$250 million by the end of August, some of which must be used to repay existing debt.

The company shut all of its venues on March 16 and most remain closed, though it plans to open some outlets in six provinces starting Friday.

The Toronto Stock Exchange stands on Bay Street in Toronto, Ontario, Canada, on Monday, August 29, 2011. Bay Street is the centre of Toronto’s Financial District and is often used as a metaphor to refer to Canada’s financial industry.
(Photo: Brent Lewin/Bloomberg via Getty Images)

Cineplex shares have slumped 75 per cent this year, making it the worst-performing stock on the S&P/TSX Composite Index.

— Bloomberg