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Regal owner Cineworld has called off its planned $2.1 billion takeover of Canadian exhibitor Cineplex, which would have created one of the world’s largest cinema companies with more than 11,200 screens globally.
“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,” the U.K.-based suitor said Friday in a statement.
Cineworld did not specify what the alleged breaches of the transaction by Cineplex were as it backed out of the deal.
In its own statement on Friday, Cineplex rebuffed Cineworld’s claim that it had breached the terms of their merger agreement and said it will take legal action to recover damages as the transaction does not proceed. “Cineplex believes that Cineworld has no legal basis to terminate the arrangement agreement and that Cineworld has breached its contractual obligations. Cineworld’s repudiation of the arrangement agreement has been acknowledged by Cineplex and the transaction will not proceed,” the Canadian company said.
In February, the mega-deal received approval from both companies’ shareholders. But some analysts and investors urged the companies to abandon the transaction, especially when the coronavirus pandemic shuttered the circuits of major exhibitors, including Cineplex and Cineworld, and created high debt and liquidity concerns.
In a batle of competing statements on Friday, Cineplex claimed Cineworld’s allegations of breached terms for their merger agreement amounted to “buyer’s remorse” and an attempt to wriggle out of the transaction amid the COVID-19 crisis. “The arrangement agreement explicitly excludes any ‘outbreaks of illness or other acts of God ‘from the definition of material adverse effect and all of Cineworld’s allegations stem from an outbreak of illness and act of God (COVID-19),” the Canadian company said.
For its part, Cineworld countered it has complied with all obligations under the transaction agreement, which it is entitled to terminate. “It [U.K. company] will therefore vigorously defend any allegation to the contrary. Cineworld has also reserved its right to seek damages from Cineplex in respect of Cineplex’s breaches of the arrangement agreement, which, in addition to the occurrence of the material adverse effect, gave rise to the termination.”
In December, Cineworld unveiled the agreement to acquire Cineplex for $1.65 billion in cash, plus debt. Cineplex operates 165 cinemas with 1,695 screens and dominates the Canadian theatrical market. In the event of cancelling its merger, Cineworld’s original deal document indicates it will be required to pay Cineplex a break fee of $49.9 million. Cineworld’s portfolio includes such brands as Regal, Picturehouse and Cinema City.
Cancelling the merger is a setback for Cineplex CEO Ellis Jacob, who in recent years aggressively upgraded and diversified the movie chain into varied out-of-home entertainment destination businesses and was expected to retire after Cineworld took the company over.
Cineworld’s management called the Canadian market “stable and attractive” when it announced the deal. The U.K.-based company had planned to combine Cineplex with its U.S. business to create “a leading North American cinema operator.” Cineworld CEO Mooky Greidinger said the deal would ”create the leading North American cinema operator with unrivaled scale and opportunity.”
Cineworld has said the financial benefits of the deal would include approximately $65 million of cost efficiencies and $65 million in revenue synergies. The Greidinger family’s Global City Theatres owns a stake of approximately 28 percent in Cineworld.
On April 7, Cineworld said it would suspend its dividend payments and that top executives have “voluntarily” agreed to defer salary and bonus payments amid the coronavirus pandemic. That day, it also emphasized that it was continuing “to monitor progress of the group’s proposed acquisition of Cineplex.”
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