Movie Theatres’ Own Fight Scene
If any merger or acquisition was announced pre-corona, companies are claiming material adverse changes to renegotiate or wiggle out, post-corona. There have been some deals that have gone ahead, some that have been called off, and some that still sit in limbo.
Canadian Cineplex is taking British Cineworld to court because it “chickened out” of their agreement to merge. Cineworld pulled the plug because Cineplex’s business “wasn’t the same” after the pandemic struck, but Cineplex won’t be having that said.
It’s quoting the merger small print; “pandemics do not entitle agreement termination,” and it wants the full deal value in damages, plus all its debt paid off for the trouble. Cineworld says that’s ridiculous (and it is), so this is war!
The Invstr community has invested $1.6 trillion in Cineworld for its exceptional instrument score, 60% winning trade rate, and dedicated filmophile customer base. The Invstr community has watched Cineplex lose half its value over the past month to become Canada’s worst performing stock.
The reality of this suit is that whichever theatre wins, survives, and whichever loses, goes bust.
It generally difficult to renege on an agreed takeover, and to defend that by invoking the material adverse changes (MAC) clause as Cineworld intends to do. The histories of case law on both sides of the pond throw up only a handful of successful claimants, but Cineplex is in a uniquely doomed position thanks to the virus.
This situation could meet the court’s “high bar,” and even if it doesn’t, Cineworld will surely face more palatable damages to Cineplex than paying off all its debt. Cineworld will declare bankruptcy to protect itself from an army of lawyers, but don’t write it off!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
