As reported late last week, Cineworld has cancelled its planned takeover of Cineplex.
As quoted by THR:
“Cineworld has become aware of certain breaches by Cineplex Inc. of the arrangement agreement relating to the acquisition… In addition, a material adverse effect has occurred with respect to Cineplex. As a consequence of these matters and Cineplex’s unwillingness to cure the breaches, Cineworld has notified Cineplex that it has terminated the arrangement agreement with immediate effect. The acquisition will therefore not proceed.”
Cineplex countered:
“Cineplex believes that Cineworld has no legal basis to terminate the arrangement agreement and that Cineworld has breached its contractual obligations.”
So what happened? A number of things are possible.
- COVID-19 closed cinemas globally, including those in Canada, in March 2020. This had the effect of turning off revenues for both companies.
- The Canadian government extended its review due date from June 1 to 15. This had the effect of delaying approval by two weeks while the deal’s completion date remained June 30.
- The combination of these two factors may have contributed to Cineplex’s debt growing larger than originally contemplated. This could be germane because the deal contained a clause that stipulated Cineplex’s debt needed to remain under $725 million.
Perhaps with no money coming in and expenses like rent and some wages to pay, Cineplex’s balance sheet became too unbalanced for Cineworld to ignore?
Or, with the future of film exhibition in doubt, they just got cold feet?
In response, Cineplex is suing.
My take: gotta say, I’m relieved. I was not looking forward to the day when the vast majority of Canadian movie screens were controlled by a foreign company. I repeat my suggestion that Canada should buy Cineplex. Imagine if we controlled what played in Canadian cinemas? And we should be able to pick it up at a steep discount now! Can’t we add it to the corona virus relief budget somewhere? What’s another billion these days?