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.
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Cineplex shares sank $2.33 to $11.49 on the Toronto Stock Exchange after Cineworld rescinded its cash offer of $34 a share late Friday.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.
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.
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