Cineworld abandons $2.3bn Cineplex purchase
UK-based cinema chain says Canadian group had suffered ‘material adverse effect’
Cineworld, the world’s second-largest cinema chain, called off a $2.3bn deal to buy the Canadian cinema company Cineplex on Friday saying that Cineplex had suffered a “material adverse effect”, which meant the acquisition could not go ahead.
Under the terms of the deal, the sale would not proceed if Cineplex breached a level of $725m debt. When it last reported figures in February, Cineplex had net debt of $625m.
Cineplex claimed that it had not breached the sale agreement and “that a material adverse effect has not occurred”. The smaller cinema chain also claimed that Cineworld had not complied with the requirements needed in order for the deal to receive approval from the Canadian competition authorities.
The deal had been due to complete at the end of June.
In a statement on June 1, Cineplex issued a note of caution saying there could be “no assurance” that the terms required for the deal to complete would be met.
Both chains have been hit hard by the coronavirus pandemic, which has forced cinemas to close worldwide. Cineworld has cut its dividend and executive pay, and secured an extra $110m in additional liquidity from investors.
In a note on Thursday, analysts at Fitch, the rating agency, said that Cineworld’s “large, fixed-cost base means it is burning cash and eroding its liquidity buffer”.
The UK-listed cinema group, which runs 787 cinemas worldwide, said that contrary to Cineplex’s claims it had complied with the Canadian authorities and would “vigorously defend” the allegations against it.