Cineworld abandons its £1.32 billion merger deal with Cineplex

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is an active follower of world affairs, technology, an avid reader, and loves to play table tennis in… read more.
on Jun 13, 2020
  • Cineworld abandons its £1.32 billion merger deal with Canada's Cineplex.
  • The British cinema operator says Cineplex violated the merger agreement.
  • Cineplex denies all allegations and announces plans of pursuing litigation.

Cineworld Group (LON: CINE) announced to have withdrawn from its merger deal with Cineplex Inc (TSE: CGX) on Friday. The cinema operator cited Cineplex’s breaches in the £1.32 billion merger agreement for abandoning the deal. Cineworld, however, did not divulge any further information about the nature of such violations.

Shares of Cineworld posted an about 7% intraday gain on Friday. At 76.66 pence per share, the Brentford-headquartered company is roughly 65% down year to date in the stock market after recovering from a low of 21.38 pence per share in March. Learn more about why prices rise and fall in the stock market.

Cineplex denies Cineworld’s allegations

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The two entertainment companies unveiled the deal last year in December. Following the merger, the British company would have become the largest cinema operator in North America. The Investment Canada Act was scheduled to complete its review of the agreement on 15th June.

Cineplex also responded with a statement on Friday that denied all allegations by the British firm. The Canadian cinema operator said that Cineworld’s claims were ascribed to the impact of COVID-19. It also accused its British competitor of using the health crisis as an excuse to ignore its obligations laid out by the merger deal.

According to Cineworld, a “material adverse effect” forced it into pulling out of the deal. Cineplex, however, highlighted on Friday that a “material adverse effect”, as per the agreement, explicitly does not include acts of God including any outbreaks of illness.

The movie theatre chains have taken a massive hit in recent months due to the Coronavirus pandemic that has so far infected more than 7.7 million people worldwide and caused over 425,000 deaths. As the outbreak restricted people to their homes, and consumers resorted to streaming services, cinema operators met with novel financial struggles in 2020.

Both companies to file a lawsuit to recover damages

Cineplex also accentuated in its statement that the British firm had no legal basis for suspending the agreement and that it will pursue litigation against Cineworld. Both companies expressed confidence in their right to seek damages and announced plans of filing a lawsuit against the counterparty.

Cineplex was reported roughly 5% down on Friday. At £8.11 per share, the Toronto-headquartered company is about 60% down year to date in the stock market after recovering from a low of £5.19 per share in March.

In terms of market capitalisation, Cineworld is almost twice as big as its Canadian rival.

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