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A Cineworld cinema near Manchester, Britain, on Oct. 4, 2020.Phil Noble/Reuters

Canadian cinema chain Cineplex CGX-T has approached bankrupt rival Cineworld’s lenders for a potential merger with the British company’s U.S. unit Regal Entertainment, the Wall Street Journal reported on Wednesday.

Cineworld and Cineplex have been locked in a multimillion-dollar legal battle since the London-listed company rescinded its offer to buy Cineplex more than two years ago. Cineworld has since been struggling to rein in massive debt and this month filed for bankruptcy in the United States.

Cineplex is in early talks with Cineworld’s lenders about taking over Regal in exchange for debt and stock backed by the combined business, the WSJ reported, citing people familiar with the matter.

Shares in Cineworld rose as much as 11.1 per cent to 3 pence on the report before changing course. By 1045 GMT the shares were down about 4 per cent.

Cineworld and Cineplex declined to comment on the report. Cineworld’s restructuring adviser Alix Partners and financial adviser PJT Partners did not respond immediately to a Reuters request for comment.

The planned Cineplex takeover by was abandoned in 2020, with Cineworld citing breaches in the merger agreement, prompting a C$1.23-billion ($894.81-million) damages claim by the Canadian business.

Debt taken on by Cineworld to survive a pandemic-driven decline in footfall, along with previous loans to fund part of its $3.6-billion purchase of Regal in 2017 to create the world’s second-largest movie theater chain, left the British company struggling to stay afloat.

Its net debt, including lease liabilities of about $4-billion, stood at $8.9-billion at the end of 2021. The company’s market value at Tuesday’s market close was about 37 million pounds ($39.5-million).

Cineworld and Cineplex held talks this year about merging operations while settling the legal judgment but failed to reach an agreement, the WSJ added.

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