U.K. exhibition giant Cineworld is backing out of a deal to acquire Cineplex of Canada claiming the company has both breached the deal terms and experienced an unspecified “material adverse effect” that has caused Cineworld to pull out.
In a tortuously worded press release late Friday, Cineworld — the owner of U.S. chain Regal –indicated that it had approached the issues with Cineplex but that the Toronto-based exhibitor had been “unwilling to cure the breaches,” resulting in immediate termination.
Movie theaters have been in dire straits, all suffering pretty notabel adverse impacts as the COVID-19 pandemic left them with zero revenue as they closed theaters and furloughed staff.
Cineworld noted that Cineplex claims not to have breached the agreement nor suffered a material
adverse effect. It said Cineplex has separately alleged that Cineworld itself failed to comply with its obligations under the merger terms relating to pursuing the approval of deal under the Investment Canada Act.
Cineworld denied this and said it has complied with all of its obligations, is entitled to terminate the deal and will “vigorously defend any allegation to the contrary.” Cineworld has also reserved its right to seek damages from Cineplex in respect of Cineplex’s breaches.
Cineplex agreed to be acquired by Cineworld in December for $34 (Canadian) per share, or about $2.8 billion, in a deal approved by the Canadian theater chain’s shareholders in early February. The deal repped a signficant premium to the stock price then. Shares of both companies subsequently fell as the pandemic took hold.
Cineplex shuttered its theatres on March 16. At that time, it said the deal was awaiting a green light under the Investment Canada Act. It also warned that theater closures might hurt its ability to meet to the terms of debt conditions in the takeover agreement.
On May 8, the Canadian company said Cineworld has advised Cineplex that it remains committed” to closing the deal on or before June 30 but noted there “can be no assurance that the conditions to closing the transaction will be satisfied” by that date. One condition was that Cineplex’s debt does not exceed $725 million.