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Cineworld share price up at the close on news of talks

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Cineworld LSE:CINE, the cinema chain has opened talks with Canadian counterpart, Cineplex [TSE:CGX] over a possible merger.

As previously reported, the London-headquartered cinema chain has filed for Chapter 11 bankruptcy proceedings in the US at the beginning of this month, as it struggles with a USD5bn mountain of debt, a slowdown in footfall following the Covid-19 pandemic and ‘the Netflix Effect’ as consumers opt to stay in as opposed to go out to for movie night.

Cineworld hopes to exit Chapter 11 in 1Q23.

Ironically, one of the last nails in the coffin for Cineworld was its failed takeover of Cineplex. The company raised a lot of debt to acquire competitor Regal for USD3.6bn in 2017 and tried to buy Canadian cinema operator, Cineplex for USD 2.1bn in 2020; a position the company has had to retreat from, which may still leave it with a bill of up to USD1bn.

In February, Cineworld pushed back payments of around GBP125m it was supposed to make to Regal shareholders following a ruling that the USD23/share price it was paying to acquire the US cinema chain was not fair. The same month, Cineworld obtained undertakings to waive off any default arising from non-payment of dues to creditors, including holders of its guaranteed convertible bond due 2025.

According to the Wall Street Journal Cineplex is keen to take the British company’s US subsidiary, Regal Entertainment, off its hands in a debt and equity swap deal with Cineworld’s creditors. He who laughs last, laughs longest.

Shares in Cineworld rose as much as 11.1% to 3p on the news before changing course on investor profit taking. The price has since consolidated and closed up 12% on the day at 3.10p.

The London-headquartered cinema chain has engaged law firm Kirkland & Ellis LLP, a bankruptcy expert and Alix Partners, a management consultancy specialising in corporate turnarounds to help it navigate the next few months.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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