Cineplex Inc. has filed a lawsuit seeking damages from Cineworld Group PLC over the movie-theatre giant’s withdrawal from a $2.2-billion deal to buy the Canadian company.
The Toronto-based cinema operator filed a statement of claim in the Ontario Superior Court of Justice on Friday against Cineworld. The damages sought by Cineplex include the losses to its shareholders – or the difference between the approximately $2.18-billion purchase price that Britain-based Cineworld would have paid when the deal closed and the value of the Cineplex shares, as determined by the court. Cineplex is also seeking compensation for other losses – including approximately $664-million in debt and transaction costs that Cineworld would have repaid or refinanced – and other “punitive and aggravated” damages.
The now scuttled deal, first announced last December, valued Cineplex at $34 per share. Like many theatre operators around the globe, Cineplex is reeling from months of closings owing to the COVID-19 pandemic. Its stock is now trading at $8.50 per share.
“This is a case of buyer’s remorse,” Cineplex wrote in the court filing. The Canadian company said that Cineworld cited the impact of COVID-19 on Cineplex’s business, but that the terms of the deal excluded “outbreaks of illness” as a condition for termination.
According to the court filing, Cineworld’s correspondence cited reasons for terminating the deal, including that Cineplex had deferred some payments to film distributors and studios during the pandemic, along with rent, damaging its relationships. Cineplex acknowledged the deferrals, but said in its filing that the relationships had not been harmed.
Cineplex also claimed that Cineworld had cited cash management as an example of the Toronto-based company operating outside of the “ordinary course” of business. Cineplex wrote that its “reasonable efforts” to preserve the business through the crisis were done “in good faith.”
None of the claims have been tested in court.
Both companies had received shareholder approval for the transaction, which was supposed to close by the end of June. Cineworld still required regulatory approval under the Investment Canada Act to proceed, and withdrew its request for that approval on June 12, according to Cineplex.
“While Cineplex honoured all of its obligations under the Arrangement, Cineworld did not,” the company said in a statement Friday.
Cineplex announced that it would be pursuing legal action on the day the deal was called off. At the time, Cineworld said that it would “vigorously defend” itself against allegations that it had broke its contractual obligations, and reserved the right to seek damages from Cineplex for breaches.
Earlier this week, Cineplex announced that it had struck a covenant-relief deal with its lenders, on the condition that it secures at least $250-million in new financing by the end of August, and uses $100-million of that to repay its current line of credit.
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Susan Krashinsky Robertson