Announcement

Collapse
No announcement yet.

short-seller’s view that deal with Cineworld could fall apart or be reduced

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • short-seller’s view that deal with Cineworld could fall apart or be reduced

    https://www.theglobeandmail.com/busi...ith-cineworld/

    Can the global spread of the coronavirus scuttle a months-old takeover
    deal between Cineplex and British-based Cineworld Group PLC, just weeks
    after shareholders of both companies overwhelmingly approved the deal?

    Cineplex’s declining share price is clearly reflecting some rattled
    nerves.

    On Thursday, the stock closed in Toronto at $29.86, down $2.62 or 8.1 per
    cent, and well below the $34 per share takeover price – offering an
    intriguing, although potentially risky, arbitrage opportunity of $4.14 per
    share or nearly 14 per cent if the deal closes as planned later this year.

    Story continues below advertisement

    The global outbreak of the coronavirus has hammered theatre stocks in
    recent weeks, based on concerns that people will be reluctant to attend
    public events. On Wednesday, the producers of the latest James Bond film,
    No Time To Die, announced that they will delay the film’s release from
    April to November owing to a “thorough evaluation of the global theatrical
    marketplace."

    But Cineplex, in particular, was hit by a series of tweets on Thursday
    from a short-seller arguing that the deal between the two companies could
    either fall apart or be repriced because of the market turbulence.

    “The market is indicating a [about] 90-per-cent chance of the deal going
    through, which we think is horrendously mispriced. We estimate the odds at
    50-60 per cent, with the market significantly underestimating the
    desperation with which we think Cineworld will seek to break or modify the
    deal,” Hindenburg Research said in one of its tweets.

    Short-sellers profit when share prices fall, and U.S.-based Hindenburg
    Research sees the potential for a big gain here: If the all-cash deal
    between Cineplex and Cineworld fell apart, the short-seller expects
    Cineplex’s share price could fall significantly more, to $15.

    A spokesperson for Cineworld said in an e-mail: “We aren’t commenting on
    any market speculation.”

    A spokesperson for Cineplex was not available for comment. Hindenburg
    Research did not respond to an e-mailed inquiry.

    Theatre stocks were struggling long before the appearance of COVID-19,
    owing largely to competitive threats from online streaming services from
    the likes of Netflix, Amazon, Apple and Disney. These threats underscored
    the deal with Cineworld, which believed that a larger global footprint
    would help it cut costs.

    Story continues below advertisement

    “Scale matters in this business,” Cineworld chief executive Mooky
    Greidinger told The Globe and Mail in December, when the deal was
    announced.

    But the coronavirus has made a difficult situation worse. AMC
    Entertainment Holdings Inc. has seen its share price slide 37.5 per cent
    since Feb. 20, when stock markets began to reflect concerns that COVID-19
    could weigh heavily on global economic activity. IMAX Corp. has fallen
    14.2 per cent over this period.

    Cineworld shares have fallen 35.9 per cent over this period, including a
    13-per-cent decline on Thursday.

    But the question is whether weak share prices and the spread of the
    coronavirus are enough to scuttle a deal, if Cineworld wants to walk away.
    The agreement between Cineworld and Cineplex in December specifically
    mentioned that illness isn’t enough to trigger a material adverse effect
    clause, which can provide an exit.

    What’s more, theoretically it may be difficult for Cineworld to argue that
    it has been harmed significantly more from the coronavirus than other
    theatre companies, or that the coronavirus will weigh on theatre companies
    for a long time – conditions that also make it difficult to walk away.

    Julian Klymochko, CEO of Calgary-based Accelerate Financial Technologies
    Inc., which produces hedge fund and private equity exchange traded funds,
    said that merger and acquisition (M&A) deals can make attractive targets
    for short-sellers because some investors can be easily spooked.

    Story continues below advertisement

    “I think the deal is likely to close, and people who step in and buy here
    could be rewarded,” Mr. Klymochko said in an interview.

    He added: “Every short report I’ve seen on a Canadian M&A situation has
    been wrong, and the deals have closed.”


  • #2
    And you're buying CGX?

    Comment


    • #3
      Me? Ghawd no. I'm far too cowardly to get into a deal like that, especially a short.

      Comment


      • #4
        https://www.cbc.ca/news/business/cin...tion-1.5573054

        Cineworld scraps $2.8-billion takeover of Canada's Cineplex, setting up legal battle


        Social Sharing




        Canadian theatre chain denies allegations it made 'certain breaches' of contract


        The Canadian Press · Posted: Jun 12, 2020 6:39 PM ET | Last Updated: June 13




        Cineplex had agreed to a friendly takeover by Britain's Cineworld, which now says the deal is off. (Ben Nelms/CBC)


        International movie theatre chain Cineworld PLC says its deal to buy Cineplex Inc. for $2.8 billion is off, claiming that "certain breaches" of the contract were made by the Canadian company.
        But Cineplex fired back late Friday, insisting the allegations of wrongdoing are false, and vowing to see Cineworld in court in a battle over damages.
        The sudden disagreement sets the scene for what could be a dramatic showdown between two movie exhibition giants in the midst of a viral pandemic that's forced their theatres to shut down.
        Cineworld, which is headquartered in London, says it became aware of a material adverse effect and breaches by the Toronto-based Cineplex, which led it to scrap the deal before a looming June 30 deadline.
        However, it did not outline the specifics of its allegations in a statement, and a Cineworld representative would not answer questions. Cineworld said it complied with its obligations and will "vigorously defend any allegation to the contrary," and seek damages.


        A Cineworld cinema is seen closed due to the COVID-19 pandemic in Southampton, U.K., on April 19. (Naomi Baker/Getty Images)
        Cineplex issued its own statement, saying that it believes there is "no legal basis" to terminate the agreement, and that it is Cineworld that has breached the contract. It said the contract explicitly excludes "outbreaks of illness or other acts of God" from what would be considered material adverse effects of the deal.
        "Cineplex believes that Cineworld's allegations represent buyer's remorse, and are an attempt by Cineworld to avoid its obligations under the [agreement] in light of the COVID-19 pandemic," the company said.
        The Canadian exhibitor added that it "intends to commence legal proceedings promptly against Cineworld and seek damages."
        A representative for Cineplex declined to comment further.
        Pandemic hurting industry

        The spat comes as both companies grapple with an uncertain return to business after most movie theatres were forced to close by public health regulators earlier this year.
        Cineplex stopped movie screenings in mid-March at all of its 165 theatres nationwide and has yet to outline a plan to resume operations. Even still, 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.
        Hollywood has also been reluctant to get its engines running again over concerns that few people would show up to their big-budget blockbuster hopefuls. On Friday, Warner Bros. pushed the anticipated release of Christopher Nolan's Tenet, one of few big summer movies still on the schedule, back two weeks to July 31.


        A Cineplex is seen closed due to the COVID-19 pandemic in Charlottetown on March 18. (Brian McInnis/CBC)
        Right from the start of the pandemic, Cineplex acknowledged that COVID-19, and government reactions, had made "business planning uncertain for the exhibition and location-based entertainment industries."
        Other parts of the Cineworld deal still hadn't been met, including approval from Investment Canada, which had been delayed from the start of the month until June 15.
        Several other conditions applied to the acquisition, including that Cineplex kept its debt below $725 million.
        Cineworld struck the takeover deal for Cineplex long before COVID-19 had rattled the movie industry. Late last year, it offered to buy the company at $34 per share, a 42 per cent premium on the chain's stock price at the time.

        Comment


        • #5
          Well, they called it! Wow

          Comment


          • #6
            https://www.theglobeandmail.com/busi...ineworld-deal/

            Cineplex – a Calgary theatre seen here on June 15, 2020 – said on Monday
            it had already drawn up contingencies in the event that it found itself
            jilted by Cineworld.

            Todd Korol/The Globe and Mail

            Cineplex Inc. is planning to reopen its movie theatres and shore up its
            finances as it plots a course as a stand-alone business following the
            termination of its takeover by Cineworld Group PLC.

            Cineplex’s shares tumbled almost 17 per cent on Monday, the first day of
            trade after London-based Cineworld scrapped the $2.2-billion deal. It
            alleges Cineplex breached conditions in the merger agreement, without
            spelling out which ones. Cineplex, in turn, says its former suitor had no
            legal basis to renege, but suffered “buyer’s remorse” after the COVID-19
            pandemic forced the closing of cinemas, hammering revenues.

            The Toronto-based company said it plans to seek damages from Cineworld in
            a Canadian court. The case will be a test over what constitutes a
            legitimate reason to terminate an agreed-upon takeover arrangement as
            business conditions change suddenly and dramatically.

            Story continues below advertisement

            Cineplex gave no indication that a deal could still go ahead, even at
            renegotiated terms. It said on Monday it plans to bolster its balance
            sheet while preparing for the gradual reopening of its movie screens
            across the country.

            The plans include opening parts of its Rec Room entertainment complexes in
            Western Canada this week, then six theatres in Alberta on June 26. The
            company plans to begin opening cinemas in all markets where governments
            have allowed it to do so on July 3.

            Cineplex shares sank $2.33 to $11.49 on the Toronto Stock Exchange after
            Cineworld rescinded its cash offer of $34 a share late Friday. Some
            investors had speculated that the deal, first announced late last year,
            was at risk of failure since the World Health Organization declared the
            coronavirus contagion to be a global pandemic and governments imposed bans
            on large gatherings.

            Physical-distancing requirements and travel restrictions have hit the
            entertainment industry particularly hard, and its fortunes remain unclear
            as provincial governments implement staged plans to reopen their
            economies.

            Cineplex said on Monday it had already drawn up contingencies in the event
            that it found itself jilted by Cineworld. The company said it is confident
            it will be able to deal with any liquidity issues arising from
            pandemic-related restrictions.

            This will likely include seeking to revise credit arrangements, including
            renegotiating debt covenants, as others in the industry have already done,
            Canaccord Genuity analyst Aravinda Galappatthige said.

            Cineplex has already taken tough medicine to deal with the crisis, such as
            laying off its full- and part-time staff, suspending capital spending,
            halting dividend payments, seeking rent relief from landlords and applying
            for any government support programs available.

            Story continues below advertisement

            However, it is impossible to project how much of an effect this will have
            on financial results because of the uncertainty over how long the pandemic
            could last, how that might influence government-imposed restrictions and
            the timing of reopening its cinemas, the company said.

            The company’s revenues could be sliced in half this year, to $778-million,
            with attendance expected to recover slowly, said Tim Casey, an analyst at
            Bank of Montreal.

            “It is very unclear how eager consumers are to return to a crowded theatre
            until there is much more clarity regarding the state of the pandemic. We
            expect theatres will re-open initially with 30 to 50 per cent capacity to
            ensure social distancing,” Mr. Casey wrote in a research note.

            Meanwhile, sales of concession food, normally a high-volume proposition,
            are also expected to be well down from prepandemic levels, given
            logistical problems related to preventing the spread of the virus. “It’s
            hard to eat popcorn with a mask,” he said.

            Comment


            • #7
              https://www.theglobeandmail.com/busi...cern-could-be/

              Cineplex Inc. is seeking additional financing and possibly the sale of
              some assets to meet its debt obligations, and has cautioned that if
              unsuccessful, its status as a going concern could be at risk.

              The company reported its first-quarter earnings on Monday, providing a
              glimpse into the business impact of the COVID-19 pandemic, on the heels of
              its failed deal to be acquired by UK-based Cineworld Group PLC.

              Under the terms of that deal, which fell apart earlier this month,
              Cineplex was unable to take on additional debt while absorbing the hit
              from widespread closures during the pandemic. The company obtained
              covenant relief from lenders to its credit facilities until the end of
              August, but warned it could default on those covenants sometime before the
              end of September. It is now seeking financing. As of March 31, Cineplex
              had $665-million in long-term debt.

              Story continues below advertisement

              The company’s report includes stark “going concern” language about its
              future prospects. Companies prepare financial statements under the
              assumption that they will stay in business and be a “going concern.” But
              if there’s meaningful doubt about that, they or their auditors must insert
              a warning to shareholders.

              “While Cineplex currently has sufficient liquidity to satisfy its
              immediate financial obligations, there can be no assurance that the steps
              that management is taking will provide sufficient liquidity in the near
              term to meet its ongoing obligations, nor can it be assured that it will
              be able to obtain additional financing at favourable terms, or at all.
              These material uncertainties lend significant doubt about the Company’s
              ability to continue as a going concern,” the report stated.

              Cineplex's 164 movie theatres have been severely impacted by widespread
              business shut-downs that were intended to curb the spread of COVID-19. The
              Toronto-based company has conducted temporary layoffs and salary cutbacks,
              slashed spending, negotiated rent relief with landlords and delayed
              payments to suppliers, suspended its dividend and applied for government
              supports such as wage subsidies.

              In its first-quarter earnings release on Monday, the company reported a
              $173.1-million impairment charge on both its assets and goodwill,
              contributing to a net loss of $178.4-million or $2.82 per share in the
              three months ended March 31 compared to a net loss of $7.4-million or 12
              cents per share in the same period last year. The company said that the
              impairment charge was driven by the decline in its stock price in recent
              months, estimated losses from the pandemic-related closures and
              reopenings, and the time it will take for business to return to normal.

              Cineplex closed all its theatres nationwide on March 16.

              “While it is impossible to predict how long this crisis will last and how
              significant the impact will be on our business, we know guests miss the
              magic of the big screen and sound, and have a new appreciation for shared
              experiences with friends and family that can’t be replicated at home,”
              chief executive officer Ellis Jacob said in a statement on Monday. The
              report also noted that “a backlog of anticipated releases of strong film
              content” would help draw people to theatres.

              Cineworld Group PLC announced it had [71]pulled out of the $2.2-billion
              deal to acquire Cineplex on June 12. Cineplex has said it will pursue
              legal action, seeking damages for what it has characterized as a breach of
              contractual obligations by Cineworld. Cineworld has said it will
              "vigorously defend" itself against those allegations and reserved the
              right to seek damages from Cineplex for breaches.

              Story continues below advertisement

              The theatre closures -- as well as speculation that the Cineworld deal was
              in peril even before it was called off -- have battered Cineplex's stock
              price. The deal valued the Canadian company at $34 per share; in mid-March
              it fell to less than $10. The shares closed at $9.92 on Monday, before the
              earnings release.

              Cineplex reported first-quarter revenue of $282.8-million, down 22 per
              cent from $364.6-million in the same period last year.

              Last week, Cineplex announced that it would scale back its reopening
              plans, after news that the release of the highly-anticipated film Tenet
              had been delayed until Aug. 12. The company had initially planned for a
              reopening this Friday of all of its theatres in British Columbia, Alberta,
              Saskatchewan, Quebec, New Brunswick, Nova Scotia and Newfoundland. But
              last Friday the company said it would open only "select locations" in
              those provinces to begin with, and would reopen other locations more
              gradually throughout July. Cinemas are still waiting for permission to
              reopen in Ontario, Manitoba and Prince Edward Island

              Comment

              Working...
              X