Cineworld stock price drops 7% on a lawsuit from Cineplex

Cineworld stock price drops 7% on a lawsuit from Cineplex
Written by:
Michael Harris
5th July, 12:39
Updated: 5th July, 16:50
  • Cineplex to go to court and seek $2.2 billion in damages from Cineworld
  • Cineworld pulled out of a $1.65 billion deal to buy Cineplex last month
  • Shares of Cineworld closed almost 7% lower on Friday to record the fourth consecutive close in the red
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Cineworld (LON: CINE) stock price closed nearly 7% lower on Friday after Cineplex (TSE: CGX) said it will sue the British firm for “wrongful” termination of the buyout deal. As a result, Cineworld share price closed in the red for the fourth consecutive week. 

Fundamental analysis: Cineplex seeks damages 

Cineworld, the world’s second-largest cinema chain, is facing a lawsuit after Canada’s Cineplex said it will go to court to seek damages. According to Cineplex, the British cinema giant “wrongfully” terminated a $1.65 billion buyout deal last month. 

“The contractual agreements between the parties expressly exclude outbreaks of illness, such as the COVID-19 pandemic, as a circumstance entitling Cineworld to terminate the arrangement,” Cineplex said in a statement.

Last month, Cineworld terminated a buyout contract, citing a breach in the merger agreement between the cinema operators.

“As a consequence of … Cineplex’s unwillingness to cure the breaches, Cineworld has notified Cineplex that it has terminated the Arrangement Agreement with immediate effect,” Cineworld said in a statement.

The deal was signed back in December last year, when Cineworld agreed to pay $34 per share. If the deal went through, it would potentially make Cineworld as North America’s largest cinema operator.

Cineplex is now seeking nearly $2.2 billion in damages, in addition to $664 million of debt that Cineworld agreed to repay. The lawsuit is initiated before the Ontario Superior Court of Justice.

Last month, Invezz reported that Cineworld stock price struggled to trade in the green following after pulling out of the deal to buy Cineplex

Technical analysis: 

Cineworld stock price closed the week over 6% lower, mostly due to the sharp fall on Friday. Shares of the cinema giant have now closed lower on fourth consecutive occasions. As a result, Cineworld share price trades 40% lower compared to a month ago. 

Cineworld stock daily chart (TradingView)

The intraweekly support for the stock is at $56. If broken, the bears are likely to target the horizontal support at $52 next. On the upside, resistance at $70 will likely cap any attempts to recover. 

Summary

Cineworld stock price closed nearly 7% lower on Friday after Cineplex said it will launch a lawsuit against the British firm. Last month, Cineworld terminated a buyout contract, citing a breach in the merger agreement between the cinema operators.

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