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It's probably a combination of things, the fear spread by the amount Cineplex is trying to take Cineworld for was quite palpable on this BB yesterday so I expect the same feelings to spread into the wider retail market. I would say its more what Cineplex put out rather than Cineworld's RNS which I felt brought a bit of comfort to shareholders.
Continued negative news re infection rate in the USA which is the main metric our share price is tied to a the moment because people link it to possible reopening or blockbuster delays, any negative news stories can have an impact.
Short term profit takers, those who got in a few pence lower would sell at the "high" this morning to buy back in at the lower price when it falls. Cineworld has been notoriously volatile so it doesn't phase me anymore when it drops 5% in a day for seemingly no reason. It will climb back up a bit throughout the day and we'll see the usual dance of up and down until Cinemas reopen and US infection rates fall. That's my guess on whats going on anyway.
Probably thousands of retail just waking up to the news and getting out as worried. RNS news is only just getting steam on twitter and such and there would be a large amount of people not as confident in CW's counter.
That RNS was already in the morning & it went up 6% ..
Legal case with cineplex rns this morn
RNS
Anyone know why suddenly falling?
Is this having a tea break or falling off the cliff? Good start looking bad now
Hi Jayquethedog
Comparisons between minor and major breaches can only take you so far. Sometimes parties will negotiate terms along those lines but other times the contract will much more aggressively favour one of the parties. For example, in debt finance a lender will often have the right to terminate the contract and enforce if the borrower breaches any term whatsoever in the contract. Enemy something as minor the borrower failing to deliver certain information e.g. management accounts to the lender on a specified day. In practice the lender won’t enforce on those circumstances unless they really want out of the deal and have no other get out. But that doesn’t change the fact that they would often technically be entitled to do so. In cine’s case this seems like it may be a moot point because, whether or not they were obliged to do so, cine seems to have given plex the opportunity to rectify the breaches it has alleged. In such circumstances, this will likely boil down to whether plex did in fact breach the terms or not. One would hope that cine has been well advised enough to be on a very side footing before pulling the trigger on the termination. As for the damages side, again this could be determined by the contract itself which may contain provisions specifically dealing with the sum of money the other party will be entitled to if the counterparty wrongfully terminates.
I disagree that shareholers are in the dark. They have been kept informed and this morning's RNS has re-iterated their position. They have even factored a worse case scenario, adding if Cineplex’s claim is successful, it would be limited to its costs and expenses incurred as part of the deal.
To use your anology of a car purchase, let us say you were debating the purcahse of a 1993 Blue Ford Fiesta. The condition of the sale was that the car was serviced and in working order. Unfortunately, the car has failed it's MOT and revealed that it needs a complete transmission overhaul. It's value is no only £500, would you want to pay £2000 for it if the conditions of the sale have changed? I certainly wouldn't.
At a worst, if I have to pay the seller £10 to re-advertise the sale of the car, I would consider that a saving of £1990.
Based on Cineplex's apparent need to refinance this month or go under, the decision by Cineworld to pull out and counter claim creates a delay that may be designed to achieve the likely effect that they go bust before their claim can be heard and resolved.
Cineplex would have to sell the right to pursue their claim to another party for it to extend beyond bankruptcy.
It may also give Cineworld a perhaps tenuous prior claim to buy up any left over proceeds at the current market value.
Or got back to Cineplex and say, "let's call it quits and we'll buy you for some revised amount we're happy with. Take it or die"
Business is vicious.
Commercial lawyer here. Posting first time because a lot of people have the wrong idea about how these kinds of contracts work. Whether and when cine was entitled to terminate the contract will be determined by the actual terms of the contract. Depending on the actual breaches, it would not be unusual for cine to be able to terminate without giving an opportunity to rectify. Some breaches would typically have a grace period to rectify. The problem for people on the outside looking in is that (as far as I know) we are not aware of the specific breaches that have been alleged, apart from Cine saying there has been a “Material Adverse Change”. I do hope there’s more to it than that because the case law on these clauses sets a high bar for establishing the material adverse change. Usually a buyer would only rely on this in conjunction with a series of other breaches in order to establish their case. Most of the time that shouldn’t be a problem because if you can establish a material adverse change, the target would also be in breach of, for example, financial covenants.
Jay,
While it may not use the eloquent term "shaft us" the purpose of a contract is to protect both parties from situations. CW are not going to say, "yeah, you've breached this contract but let's sit down and see what we can do" and in the letter of the law they don't have to, why? Because that is why a contract is in place in the first place.
@ Jay, jus as well we had this statement from Cineworld, wouldn't you say?
"Cineworld terminated the Arrangement Agreement because Cineplex breached a number of its covenants under the Arrangement Agreement. Cineplex did not remedy these breaches when given the opportunity to do so. Cineworld is entitled to recover from Cineplex all damages and losses that it has suffered as a result of Cineplex's breaches and the Acquisition not proceeding, including its financing costs, advisory fees and other costs incurred. Cineworld intends to counter-claim against Cineplex for these damages and losses."
So
a) Cineplex breached several covenants
b) Cineplex were advised by Cineworld on the breaches and given an opportunity to resolve them
c) Cineplex failed to resolve the breaches
d) Cineworld will now file for damages and losses and a counter calim is on its way to Cineplex.
If I was a share holder in Cineplex, knowing that a counter-claim was coming from a giant like Cineworld who have irrefutable evidence of breaches, then it doesn't bode well for debt-stricken Cineplex.
@Jay, I'm afraid the law that prevails Mergers and Acquisitions is a lot more complicated than purchasing a used banger.
The integrity of the law will be maintained and we should hear more as it develops.
Just to remind you all again, Cineplex have to RE-FINANCE this month (July). They need to raise $250 million, if they don't it is going to be curtains for them.
Do you know of a legal challenge to this magnitude that has resolved in a month? No, I haven't either...
Overall market looking good.so added some more @60.80 to average down.
Have you really just made a comparison between buying a car and a $2 billion plus takeover? Deary me.
Jay,
This isn't a grievance in a work place. It's a breach of contractual covenants. CW don't need to give them a chance to rectify, they can just use them to pull out of the deal. That's why a contract is in place. A judge will just care about 2 things, what does the contract say, has it been breached. Won't give 2 hoots about if Cineworld gave them a chance because that's not the law.
@Jay look up the terms confidential and disclosure. When you're involved in a legal challenge you cannot give so much detail in the public domain. Cineworld have issued a LEGAL RNS that re-iterates their position.
Cineplex breached not ONE but SEVERAL - the key in in the text "breached a NUMBER of its convenants under the Arrangement Agreement. Cineplex did not remedy these BREACHES (plural again) when given the opportunity to do so".
It is as clear as the text it is presented - Cineplex failed on SEVERAL fronts and they are their masters of their own demise.
The market is reading this as well and responding accordingly.
I'm inclined to agree with the earlier post that you cannot reveal too much detail on your legal response.
The fact of the matteris that
a) Cineplex was valued at $2.1bn Canadian dollars - it now worth a quarter of that ~500million
b) Cineworld would have paid a 4 x premium had Cineplex not breached their terms of the deal - thus it is a blessing Cineplex did
c) Cinexplex are at the brink of collapse and desperate. They need to refinance, this month - July and I expect they will default and won't have enough funds to pursue a legal challenge. If they do they risk the counter claim from Cineworld which would finish them off.
Lots are posting negative sentiment, eager to get an entry but with Regal cinemas opening - 80% of them in the US in 4 weeks, it would be foolish to let them go when we are so close to this point.
Good luck, all - FTSE is set for a rally.
My sentiment exactly. Giving details would forewarn cineplex. Forewarned is forearmed
I'm in the same boat here. Don't see how this changes anything in a material sense.
I disagree that there is now more uncertainty. Everyone knew a legal case against Cineworld was coming and we're expected to return one in due course. Cinemark aren't some penny share business - if they say they're bringing a case against someone, they absolutely will.
I guess the size of the damages claim could be deemed 'new information', but that's about it for me.
Half an hour until we all find out I guess. Futures market looking good.
But given the legal battle they are probably going to keep most cards close to the chest.
Do agree with Jacque that it would have been nice to have a bit more detail ideally.
I've never seen a business communicate that level of detail to the market upon initiation of legal proceedings, I wouldn't expect to see it here.
Agreed, given the Cineplex position they were always going to pursue legal proceedings to appease their shareholders and debtors. Unfortunately for plex, they really have no other choice.
If anything I think the strong statement of intent from Cineworld indicates a positive position to move forwards from this.