Cinema Chain Merger Heads for Court Fight

Cineplex accuses Cineworld of "buyer's remorse" and seeking to avoid its obligations under the merger agreement because of the COVID-19 pandemic.
Matthew HellerJune 15, 2020

U.K-based Cineworld has called off a $2.1 billion deal to acquire Canada’s Cineplex, setting the stage for a legal battle between the two giant movie theater operators.

In terminating the $34-per-share deal before a June 30 deadline, Cineworld, the owner of the Regal theater chain, said it had “become aware of certain breaches by Cineplex Inc. of the arrangement agreement relating to the acquisition” and that “a material adverse effect has occurred with respect to Cineplex.”

However, Cineplex responded that Cineworld had “no legal basis” to terminate the deal, noting that the arrangement agreement “explicitly excludes any ‘outbreaks of illness or other acts of God’ from the definition of material adverse effect” and all of Cineworld’s allegations arise the COVID-19 pandemic.

“Cineplex believes that Cineworld’s allegations represent buyer’s remorse, and are an attempt by Cineworld to avoid its obligations under the arrangement agreement in light of the COVID-19 pandemic,” the Canadian firm said in a news release.

Each of the companies indicated they would sue the other for breaching the agreement.

“Cineplex will file suit promptly to … hold Cineworld responsible for its breaches and failure to complete the transaction,” the company said.

Cineworld announced in December it would acquire Cineplex, which dominates the Canadian theatrical market, in a move that would have created one of the world’s largest cinema companies with more than 11,200 screens.

But theater operators have been reeling since the pandemic foreclosure forced their screens to go dark. In April, Cineworld said it would suspend its dividend payments and that top executives had agreed to defer salary and bonus payments.

“Industry observers are uncertain how quickly cinemas can return to business as usual, since they will need to introduce physical distancing into the auditoriums, which means fewer tickets sold,” The Canadian Press reported.

In a similar dispute, Texas chain Star Cinema Grill has accused CMX Cinemas, the eighth-largest U.S. chain, of using the pandemic as a pretext for backing out of its takeover of SCG.