Cineplex Adopts "Poison Pill" to Fight Hostile Takeover Bids

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Cineplex plans to reopen the majority of its theaters in July.

The movie chain disclosed that it was "not aware" of any new offers. So why the defensive plan?

Canadian exhibition giant Cineplex will reopen six of its 164 movie theaters June 26, with the rest set to resume business in July after their shutdown because of the COVID-19 pandemic. But, before allowing theatergoers back, the chain adopted a so-called poison pill on June 19 for shareholders.

Also known as a stockholder rights plan, the action is a defense against hostile and low-priced takeover attempts that take advantage of weakened stock prices. Cineplex said its three-year plan — allowing shareholders to purchase discounted shares triggered by unwanted offers for a stake of 20 percent or more — was designed to ensure "fair treatment" of shareholders. The chain disclosed that it was "not aware" of any new takeover bids. So why the defensive plan?

"They and others are afraid of unsolicited takeovers by unfriendly parties" that could come any day after a stock drop, explains Hal Vogel, CEO of Vogel Capital Management. With Regal theater chain owner Cineworld calling off the $2.1 billion bid for Cineplex on June 12, and the stock falling from more than $11.81 before that to close the following week at $7.86, the company may be feeling particularly vulnerable. Cineplex and its management are "protecting themselves from any predatory takeover activity while the stock is in post-deal, pandemic crisis," CIBC World Markets analyst Bob Bek adds.

Cineplex isn't alone in fearing hostile takeover bids. In the broader entertainment space, radio giant iHeartMedia, theme parks operator Six Flags Entertainment and in-flight entertainment provider Global Eagle Entertainment have in recent months unveiled poison pills. M&A and governance research firm Deal Point Data counted 19 new traditional shareholder rights plans in April, the highest number since it started tracking data in 2017. In May, the number declined to 10.

"As equity markets have recovered, there's been a decline in poison pill adoptions," says John Laide, who manages corporate governance research at Deal Point Data. With Cineplex not ruling out all deals, though, could the firm look for a new buyer? Says Bek, "They are certainly going it alone until they rebuild the business and their valuation to better reflect the true business model."

This story first appeared in the June 24 issue of The Hollywood Reporter magazine. Click here to subscribe.