22nd Aug 2022 16:45
(Alliance News) - Cineworld Group PLC has paid the price for an ambitious growth strategy, with its poor financial state laid bare as it mulls bankruptcy in the US.
The cinema chain on Monday confirmed it is considering its options, including potentially filing for US Chapter 11 bankruptcy, as it grapples with liquidity woes.
Last week Wednesday, Cineworld said it was in talks with a number of stakeholders for ways to secure extra cash. It said a "comprehensive deleveraging transaction", though it cautioned this would dilute shareholder value.
Cineworld operates over 700 sites across the globe, including over 100 in the UK and Ireland.
Last week it said recent admission levels have been below expectations, due to what it called a weaker film slate.
"The company has been destroyed by the pandemic. Covid meant that cinemas were closed for many months, Hollywood was unable to churn out hits and consumer preferences shifted towards streaming instead which has caused lasting damage for ticket demand even after movie theatres reopened. On top of that, Sky for example now releases new blockbusters at the same time as the cinemas, again reducing the incentive to leave the house and organise a cinema trip," interactive investor analyst Victoria Scholar commented.
"Plus, Cineworld has been dealing with problems of its own."
Back in December, Cineworld was told to part with CAD1.23 billion, about GBP718.1 million, after a Canadian court ruled against the company in a case brought by jilted takeover target Cineplex.
The Ontario Superior Court of Justice decided in Cineplex's favour and awarded it damages from Cineworld for lost synergies and CAD5.5 million for lost transaction costs. A Cineworld counterclaim was dismissed, though the company said it will appeal the judgment.
In addition, Cineworld has had arrangement with former dissenting shareholders of its Regal unit hanging over its equity story. In February, it negotiated a new payment deadline with the shareholders.
In early 2018, Cineworld took over the US cinema business, and in May of last year, Cineworld received a court judgement regarding the price that Regal shareholders were paid. The judgement against Cineworld was around USD255 million.
AJ Bell analyst Russ Mould commented: "Cineworld may still be open for business but it has confirmed Friday's speculation that it could file for Chapter 11 bankruptcy in the US. While it might provoke a few dozen think pieces on the demise of the cinema, in reality Cineworld's problems stem from an overly aggressive growth strategy which relied on using huge amounts of debt to buy US chain Regal.
"This may have made Cineworld one of the largest cinema operators in the world, but bigger isn't necessarily better and the pandemic swiftly exposed the company's strained balance sheet."
Cineworld shares tumbled another 21% to 3.20 pence each in London on Monday. Just before a wider market sell-off due to Covid-19 in 2020, the stock traded as high as roughly 181p.
By Eric Cunha; [email protected]
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