One of my favourite movies is 2002 post-apocalyptic horror film, 28 Days Later. In an opening scene, the hero, a bicycle courier played by Cillian Murphy, wanders around a deserted and desolate Central London after coming-to from a coma and seeing the after-effects of a virulent virus.
Cineworld LSE:CINE management must feel a bit like Murphy this morning, as any further potential rescuers are now conspicuous by their absence following the collapse of a potential bid from rival cinema chain, Vue International.
As previously reported Vue, a subsidiary of AMC Theatres NYSE:AMC, had received the financial backing of Barings and Farallon Capital Management to make a ‘whole-business’ bid for its larger rival last month.
Bleak outlook
But 28 days later, news emerged that the bid was dead – much like most of the cast of the film of the same name – leaving Cineworld wandering around like a zombie, still ostensibly operating, but with a bleak outlook of eventual starvation, or a merciful cricket bat to the head.
According to media reports, Vue has been “frozen-out” of a sale process being run by Cineworld’s advisers barring the company from further discussions. Media speculation believed that Vue was most-interested in Cineworld’s Picturehouse brand, whereas Cineworld’s management was holding out for a whole-entity sale.
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Last month the Brentford-based, global cinema chain advised shareholders that their interests would be wiped out in any forthcoming deal. In a statement to the market in February, Cineworld said: ““[…] Discussions between the company and certain of its stakeholders regarding a potential plan are progressing. Whilst the discussions suggest that there is a route to the company emerging from the Chapter 11 cases, in light of the level of existing debt that is expected to be released under any plan, the company does not believe that there will be sufficient creditor support for a plan that contemplates any recovery for equity interests, and it is therefore not expected at this time that any plan will provide any recovery for holders of Cineworld’s existing equity interests.”
The company has advised that it has received several bids, but none of them were willing to take the group on as a complete entity.
Time to blink
It is hard to see where Cineworld progresses from here. Someone has to blink, and given Cineworld’s parlous state they are likely to have to rethink the strategy of selling the complete business as a going concern, and may have to concede to selling the juicy bits off piecemeal to various bidders. For jobs and continuity, the Vue bid may have been the most attractive, but it is unclear whether the two cinema chains will pick up discussions again.
Cineworld opened trading today (17th March) at 2.28p. Shares are down -32.9% from the beginning of the year and down -93.6% over one-year, ranging between 1.8p and 39.7p over a 52-week period. The company has a market capitalisation of GBP32.6m, a far cry from its valuation of USD12.8bn and position as the world’s second largest cinema chain six months ago.
Cineworld’s problems arose as it tried to aggressively capture market share in a debt-financed, pre-pandemic acquisition spree. However, some of its deals went sour, costing the movie theatre billions, and then Coronavirus hit. Footfall vanished overnight as cinemas globally were forced to shutter their premises. Movie releases then dried up and Cineworld still had a debt mountain of near USD5bn but no revenue. Despite trying to restructure its debts, things eventually became unsustainable and last September it was forced into Chapter 11 bankruptcy proceedings in the US and sought a company voluntary arrangement (CVA) in the UK.
No doubt, the management and advisors will keep trying to find a deal right down to the wire, but should you be driving along the A4’s Chiswick Flyover in West London, you might look over towards Cineworld’s headquarters in the Vantage Building and see management spelling out “HELLO” in bedsheets in the carpark; just like Murphy’s character in the closing scene of 28 Days Later.
