The Cineplex Saga Continues With U.S. Bankruptcy Court Denial

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The Cineplex Saga Continues With U.S. Bankruptcy Court Denial
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Cineplex continues to look for ways to monetize its 2020 aborted merger with UK-based Cineworld. Recent events suggest its pursuit of justice will be a long and winding road.

A judge in the U.S. Bankruptcy Court in Houston on Wednesday denied Cineplex Inc.’s request to allow its case against Cineworld Group plc (LON:CINE) to proceed in October in the Ontario Court of Appeal despite the current U.S. proceedings.

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Judge Marvin Isgur said allowing the litigation to continue at the early stage of London-based Cineplex's bankruptcy case would be "premature." "The purpose of the automatic stay is to give the debtor a breathing spell," Isgur said.

Cineworld Withdraws Deal To Acquire Cineplex

Cineworld, which filed for chapter 11 earlier this month, withdrew from a deal to acquire Cineplex in the wake of the Covid-19 pandemic. "The purpose of the automatic stay is to give the debtor a breathing spell," Judge Isgur said.

He added that Cineplex remains free to seek future relief.

As a result of the decision in the U.S., Cineplex's efforts to collect a CAD$1.24 billion Ontario Superior Court of Justice judgment in December 2021 are on hold until 2023 after Cineworld's U.S. bankruptcy proceedings have concluded. 

Cineplex's share price jumped to $9.37 on the news but quickly retreated. It had since fallen back to where it was trading before the speculation surfaced. CGX stock lost 34% in 2022 to date and is off almost 75% since March 2020, when it appeared Cineworld would try to rescind its CAD$2.8 billion offer to buy Cineplex.

In June 2020, the company officials said it wanted out of the deal.

Also, on Wednesday,  The Wall Street Journal reported that Cineplex is considering merging with Regal Entertainment Group, Cineworld's U.S. subsidiary. 

Details regarding potential Cineplex/Regal plans are limited, with the Journal saying Cineplex would offer Cineworld's lenders cash-and-stock backed by the combined business's assets.

Some investors aren't convinced. Cineplex wants a Regal Deal. Deadline.com reported on Sep. 28 that the company is merely trying to secure its claim against Cineworld. 

"I read the story as I was eating my cheerios that Cineplex has engaged with lenders of Regal Cinemas about a potential merger. That was news to me. We obviously have had merger talks with Cineplex on and off," said Cineworld attorney Joshua Sussberg of Kirkland & Ellis. "In fact, there were conversations over the course of the summer before we had an acute liquidity problem."

In 2019, Cineworld's U.S. business generated $3.21 billion in revenue, including $1.86 billion from box office receipts. Over the next two years, its combined revenue was $1.80 billion, less than its 2019 box office. Cineplex's 2019 revenue was CAD$1.67 billion. Its two-year combined revenue for 2020 and 2021 was CAD$1.07 billion. 

Assuming a merger between Regal and Cineplex went ahead, it would have combined revenue of $4.43 billion, based on 2019 results. AMC Entertainment Holdings (AMC) trades at 1x sales, which values the combined entity's equity at $4.43 billion. 

AMC paid $3.6 billion for Regal's equity in 2018, plus the assumption of $2.3 billion in net debt. 

Before Cineplex can make an official offer to the bankruptcy courts to buy Regal, Cineworld has the right to make its restructuring offer to its creditors.

Article by Will Ashworth, Fintel

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