Cineplex Inc. (TSX: CGX) has approached lenders to its bankrupt rival Cineworld Group about restarting a prospective merger with the British chain’s Regal Entertainment Group franchise in the US.
The Canadian theatre chain has a pending court award of US$1.24 billion in damages after the firm won in the Ontario Court against Cineworld. The latter claimed Cineplex breached their contract and thus unilaterally terminated the agreement. However, the court didn’t agree and handed the judgment down in favor of Cineplex.
However, with Cineworld’s bankruptcy filing, the claim “is initially stayed pursuant” to the proceedings, with Cineplex admitting that it is not possible “to predict the timing or final outcome of the appeal of the decision.”
Despite this, Cineplex still asked the bankruptcy court to modify the automatic stay hedged on the award and to be allowed to proceed with the claim in the Ontario court. However, the court did not grant the request, “without prejudice to Cineplex’s ability to seek such relief at a later date.”
According to people familiar with the matter who told The Wall Street Journal, Cineplex has begun preliminary discussions with Cineworld’s lenders regarding taking over the company’s U.S.-based Regal movie theater chain in exchange for debt and stock backed by the amalgamated business.
Creditors kept Cineworld viable via millions of dollars throughout the pandemic, and they are expected to take ownership of the majority of the company when it emerges from bankruptcy. While the theatre chain undergoes restructuring, creditors are expected to have an influence on the fate of its outcome.
In short, Cineplex would need the backing of Cineworld’s lenders to be able to make a viable offer. The people said that the Canadian chain hasn’t made any statement of support for the said merger and before other alternatives can be suggested, it has the right to make its own restructuring offer to creditors.
In 2017, Cineworld acquired Regal for around US$4 billion in debt and approximately US$2.3 billion in stock. When the firm filed for Chapter 11, it had around US$5 billion in debt.
Cineplex last traded at $9.22 on the TSX.
Information for this briefing was found via The Wall Street Journal and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.