As 2023 begins the Cineworld LSE:CINE saga rolls on, as the embattled cinema chain announced yesterday (3rd January) that it was seeking the sale of its business as a whole entity – not as piecemeal assets.
The news sent Cineworld’s shares tumbling, with its shares opening at 3.671p today. Shares had fallen to 3.46p within the first two hours of trading, down 4.8% from the beginning of the year and down 89.2% over one year with its shares ranging between 45p and 1.8p over a 52-week period.
The company has a current market capitalisation of GBP50.4m and was trading as high as 318p in April 2019.
Since then, Cineworld has been a tale of woe. As previously reported, Cineworld’s fall from grace has been rapid and dramatic. From being the number one cinema group in the UK, and the second largest globally after AMC Theatres NYSE:AMC; the cinema chain was forced into Chapter 11 bankruptcy protection in the US in September 2022 and agreed a settlement with its landlords and creditors in the UK in October.
Additional borrowing
The UK settlement paved the way for the company to borrow an additional USD150m and make a USD1bn debt repayment after creditors removed their opposition to the repayment. Subsequently, Cineworld announced that it would make good on rent due after 3Q22 after previously saying it was not going to make any rent payments after September 2022.
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Management at Cineworld have been trying to find a buyer. A possible deal emerged at the end of September 2022, with Canadian counterpart, Cineplex TSX:CGX, which gave creditors and investors some hope. However, the discussions came to nothing, and AMC also recently said that it wasn’t interested in any of Cineworld’s assets. The company came out yesterday to deny claims that Odeon, an AMC subsidiary, was interested in buying its theatres.
Aggressive expansion
Ironically, it was Cineworld’s attempts to aggressively expand into the North American market which sowed the seeds of its ultimate downfall. The company raised a lot of debt to acquire Regal for USD3.6bn in 2017 and tried to purchase Cineplex for USD 2.1bn in 2020; a position the company had to retreat from, leaving it with a bill of up to USD1bn. In total, Cineworld’s debts totted up to USD4bn and when it entered Chapter 11, it had a mere USD4m of cash in the bank.
Cineworld, founded in 1995, operates 500 sites in the US and more than 100 in the UK and Ireland. It also has theatres in Israel and across Europe including in Poland, the Czech Republic, Slovakia, Hungary, Bulgaria and Romania.
The group embarked on its aggressive expansion programme at the wrong time – trying to expand its movie theatre footprint globally just before Covid-19 closed cinemas and the ‘Netflix-isation’ of content consumption had just started to gain traction. Footfall and revenues fell off a cliff – something the whole sector had to contend with – but Cineworld’s significant debt exposure still needed servicing and this proved ultimately fatal for the business.
Poor timing
Sadly, Cineworld might be a victim of bad timing once again. 2023 could become a blockbuster year for cinema-goers despite the general economic gloom globally. The last weeks in December 2022 were buoyed by the release of the long-anticipated sequel to James Cameron’s 2009 film Avatar. The post-Covid production hangover for studios is starting to clear, addressing the supply issue that had bedevilled cinemas over the past two years. Although the industry might not expect to get back to the USD11bn pre-Covid box-office sales figure, it might come close in 2023.
But where now for Cineworld? The company is still hopeful that it will emerge from Chapter 11 by the end on 1Q23. The streamers are also seeing the benefit of the movie theatre experience, with reports that Amazon NASDAQ:AMZN was planning on making 11 to 12 films for release in cinemas. But it might be too little, too late.
Cineworld is running out of credible buyers, so investors should strap-in for another year of pain as the recovery process plays-out quite publicly throughout 2023.
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 bankruptcy and sale process.
