Yahoo Finance Cineworld shares crash after £700m court ruling
Cineworld (CINE.L) shares plummeted to their lowest level in a year on Wednesday after it was ordered to pay Canadian rival Cineplex more than £700m ($928m) in damages for abandoning a planned takeover.
The cinema chain, which is the world’s second largest, was taken to court last year after it pulled out of a 2019 takeover deal which would have seen it become North America’s biggest cinema operator.
The Canadian court ruling denied Cineworld’s counterclaim, citing breaches in the merger agreement.
Cineplex said its board was pleased with the judgement and that it would have no further comment during the 30-day period during which either party can appeal the decision.
Cineworld said it disagrees with the Ontario Superior Court's judgement and that it would appeal. It does not expect damages to be payable while an appeal is pending.
Berenberg analyst Owen Shirley said the judgement was "dire" and warned it has "the scope to wipe out all the remaining equity in the business".
Meanwhile, Ivor Jones at Peel Hunt said the damages are "in excess of Cineworld’s available resources”, warning of uncertainty over the outcome.
It comes as the company, which also owns Picturehouse and Regal, has been struggling with mounting debt during the past year-and-a-half as the coronavirus pandemic ripped through the leisure industry.
The firm closed its cinemas in the UK and the US indefinitely in October 2020, and thousands of Cineworld staff in Britain were placed on furlough during the time.
The industry was also rattled by a number of blockbuster film delays, such as Marvel’s Black Widow and the latest James Bond film No Time To Die. The 25th Bond film was initially due to be released in cinemas in April 2020, but was pushed back three times to October 2021.
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The ruling also comes three months after an agreement by Cineworld to pay $214m to Regal shareholders who argued that the £2.7bn acquisition of the US cinema chain in 2018 was not done at a fair price.
“Cineworld’s hunger for growth has come back to haunt it,” Russ Mould, investment director at AJ Bell, said.
“Pre-pandemic the company had expanded through acquisitions including taking on considerable debt to plant a flag in the US via the purchase of Regal Entertainment.
“Despite having borrowings up to its eyeballs, Cineworld then chased more growth by striking a deal in December 2019 to buy Canada’s Cineplex. That was a bold move, and many people suggested its eyes were bigger than its belly.”
He added: “Cineworld is losing credibility fast with investors, having taken too many risks with expansion and paid the price for unscrupulous tactics.”
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