skip to Main Content
 

Cineworld approaches its Endgame after pulling out of the sale process

*

And with a snap of the fingers, it was all over. Cineworld [LSE:CINE] has given up on its plans to sell its business following its entry into Chapter 11 bankruptcy protection in September 2022. Instead, the troubled cinema chain has said it will go to the market to raise GBP1.8bn (USD2.3bn) of new debt and equity to get itself out of bankruptcy.

The Armchair Trader has followed the decline of the Brentford-based, global cinema chain and in August last year we wrote that things were not well behind the curtain. The whole point of Chapter 11 is that it gives a company in trouble a bit of breathing room to get its affairs in order before its creditors come chasing. The whole process for Cineworld has been far from orderly.

Debt-financed acquisition spree

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. Despite trying to restructure its debts, things eventually became unsustainable and the cinema chain was forced into Chapter 11 in the US and sought a company voluntary arrangement (CVA) in the UK.

The world’s second largest cinema chain initially engaged law firm Kirkland & Ellis LLP, a bankruptcy expert and Alix Partners, a management consultancy specialising in corporate turnarounds to help it navigate the process. However, the Thin Red Line that Cineworld insisted upon was that its business, with about 750 cinemas across the world, was sold as a whole entity, not sawn-up and sold piecemeal. One-hundred-and-three of those cinemas are in the UK and Ireland and the company also owns the Picturehouse brand.

The insistence came from the top, as Mooky Greidinger, the company’s CEO didn’t want the business that three generations of his family had built from one cinema, broken up like a pretzel. However, media speculation surfaced over the weekend that creditors had eventually lost patience with Greidinger, as suitors came and went and were rejected by management, and it was likely that the CEO’s ticket is going to be punched for the last time soon.

Last month, private equity shop, CVC Capital Partners and activist investor Elliott Management proposed separate takeover bids for its eastern Europe and Israeli operations.


Equity-debt swap

As takeover talk subsided, By Dawn’s Early Light, the management still had a huge debt mountain to climb if it is going to emerge from Chapter 11 in the first half of the year, as promised. The new deal on the table includes around USD1.5bn lines of credit and USD800m in equity to the creditors. To raise a bit more change, Greidinger conceded to auction off its non-UK, US and Ireland assets in Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.

In a statement to the market, Greidinger, was quite upbeat yesterday, saying: “This agreement with our lenders represents a vote of confidence in our business and significantly advances Cineworld towards achieving its long-term strategy in a changing entertainment environment.”

Blockbuster plan

The cinema chain is gambling on a good summer with a flurry of blockbusters coming down the line, with Super Mario Brothers, Dungeons and Dragons, and the latest John Wick in cinemas, or heading there soon. The company said it expected Easter Holiday trading to be brisk and should give it a boost through the restructuring process.

Although USD800m equity is going to creditors, unfortunately for the company’s existing shareholders its is looking like more Melancholia, as a statement today said: “…Consistent with the company’s announcement on 24th February 2023, in light of the level of existing debt that is expected to be released under the plan, the proposed restructuring does not provide for any recovery for holders of Cineworld’s existing equity interests…”

As reported last month, when Vue’s 11th hour attempt to buy the Cineworld group was ‘frozen-out’ by the beleaguered FTSE company’s management, despite Vue, a subsidiary of AMC Theatres [NYSE:AMC], receiving the financial backing of Barings and Farallon Capital Management to make a ‘whole-business’ bid for its larger rival, things looked bleak for Cineworld.

In the Avengers franchise ‘The Snap’ killed the main hero, Robert Downey Jr.’s, Iron Man. This snap by Cineworld’s management will in all probability kill Cineworld as it is, hollowing out the group and handing control to its creditors.

Cineworld closed trading yesterday (3rd April), at 1.96p, falling 32.5% in the day’s trading. Cineworld was down -46.3% year-to-date and down 94% over one-year with its shares ranging between 1.6p and 34.25p over a 52-week period. The company has a market capitalisation of GBP39.8m, a long way off from its valuation of USD12.8bn and position as the world’s second largest cinema chain six months ago.

Like this article? Sign up to our free newsletter.

This article does not constitute investment advice. Do your own research or consult a professional advisor.

The Armchair Trader's 'How to' Guides

In-depth Reports

Detailed reviews of selected companies and investment trusts.

Thanks to our Partners

Our partners are established, regulated businesses and we are grateful for their support.

Aquis
FP Markets
IG
Pepperstone
WisdomTree
CME Group
Back To Top