Canadian cinema giant Cineplex says the Ontario Superior Court of Justice has ruled in its favor in a breach of contract lawsuit brought against Regal owner Cineworld Group PLC.
Cineplex said it had been awarded damages of $1.236 billion in lost synergies from the abandoned takeover deal and $5.5 million in transaction costs. The Canadian court also denied Cineworld’s counterclaim against its former takeover target.
In the 39-page court decision, Justice J. Conway said Cineworld had no legal grounds to terminate its deal to acquire Cineplex. “I have reviewed the alleged breaches carefully and have found that Cineplex did not breach the covenants in the arrangement agreement. It did not fail to comply with the operating covenant. It did not breach any of the other covenants during the interim period. Cineworld had no basis for terminating the arrangement agreement. Its June 12 notice was a repudiation of the agreement,” the ruling stated.
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Justice Conway argued Cineworld wrongly used a provision of a $725 million debt condition Cineplex was under and its ability to meet it to terminate the transaction before the closing date. “Cineworld could not refuse to close on this basis nor could it walk away on account of the pandemic since that was excluded from the definition of company material adverse effect,” the ruling added.
“We are pleased that the court found Cineplex acted properly throughout this difficult period in our history. With roots that go back over 100 years, we are proud of the relationships we have maintained through this process and remain steadfastly committed to our guests, shareholders and team across Canada and the United States,” Cineplex president and CEO Ellis Jacob said in a statement.
In June 2020, Cineworld called off its planned $2.1 billion takeover of Cineplex, which would have created one of the world’s largest cinema companies with more than 11,200 screens globally, just as the pandemic shuttered theaters. The coronavirus pandemic shuttered the circuits of major exhibitors, including Cineplex and Cineworld, and created high debt and liquidity concerns. Cineworld subsequently reopened its theater circuit in April 2021.
Cineplex rebuffed Cineworld’s claim that it had breached the terms of their merger agreement and said it would take legal action to recover damages as the transaction did not proceed.
Cineworld said it will appeal the Canadian court decision. “Cineworld disagrees with this judgement and will appeal the decision. Cineworld does not expect damages to be payable whilst any appeal is ongoing,” the U.K. cinema giant said in its own statement.
