The Cineworld LSE:CINE saga rolls on and on, like a Martin Scorsese film. This week saw another false dawn as the rescue deal from competitor Vue looks under threat.
The Brentford-based, global cinema chain’s insistence on a ‘whole-entity’ sale has put many investors off. In a statement today, Cineworld, the UK’s largest cinema chain said: “[…] the company has now received non-binding proposals from a number of potential transaction counterparties for some or all of the group’s business. None of these proposals involves an all-cash bid for the entire business.”
No joy for Cineworld shareholders
However, further down, the same statement 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 note adds that any sale transaction for the group as a whole would not include the sale of the equity interests in Cineworld itself and would therefore not be subject to the rules of the Takeover Code.
The news that any possible deal will wipe-out the value of any equity interests comes like a bullet to the head akin to Trooper Billy Costigan’s death in the elevator scene in The Departed for long-suffering shareholders.
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The news sent Cineworld’s shares tumbling 21.5% in the first three hours of trading today (24th February), with its shares opening at 3.1p today and falling to as low as 2.1p following the release of the management’s statement at 08:00. A week ago, shares were changing hands at around 4.9p, but Cineworld is now down 16.1% from the beginning of the year and down 92% over one year with its shares ranging between 41.5p and 1.8p over a 52-week period.
The company has a current market capitalisation of GBP54.4m and was trading as high as 318p in April 2019.
A Perfect Storm
Cineworld, had been struggling to stay afloat amid the coronavirus pandemic following an aggressive and not-entirely-successful acquisition programme and Covid-19 related footfall issues. The company announced in October 2020 that it would temporarily close all of its 536 cinemas in the UK and US, leaving around 45,000 staff members without work.
In November 2020, the company said that it was in talks with lenders to secure additional liquidity to weather the pandemic. However, it was unable to secure the necessary funding, and in December 2020, the company confirmed that it was exploring a company voluntary arrangement (CVA) to restructure its debt and operations. Subsequently Cineworld announced it was applying for Chapter 11 in the US after it could not pay its creditors.
As a company, Cineworld remains hopeful of exiting Chapter 11, following a hearing earlier this week in a Texan Court, where Cineworld’s legal team provided the judge with a proposed schedule that would see the company either sold or exiting bankruptcy as early as the end of May. Cineworld entered bankruptcy on 7th September last year after mounting debts.
Since then, as reported, Cineworld’s fall from grace has been rapid and dramatic. From being the second largest cinema chain globally after AMC Theatres NYSE:AMC the company was forced into Chapter 11 and agreed a settlement with its landlords and creditors in the UK in October 2022. The UK settlement paved the way or the company to borrow an additional USD150m and make a USD1bn debt repayment after creditors removed their opposition to the repayment after it agreed to make good on rent due after 3Q22 after previously saying it was not going to make any rent payments after September 2022.
Suitors came and went, but Cineworld was left always the bridesmaid, never the bride like Katherine Heigl in 27 Dresses. Following today’s update, it seems that the company’s shareholders will be the ones left standing alone at the altar.
