Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
I have seen many messages on this thread that assert the court case was wrongly decided/allege bias/expect the appeal will be successful etc etc. But none of the posters seem to have read the judgement or understand why it was made. Let me summarise. Cine were allowed to walk away from the deal if there was a “material adverse effect” after the deal was signed but before the deal closed, but it was expressly agreed in the documents that “outbreak of illness” would not be considered to be a “material adverse effect”. In other words, the deal was that Cine took that risk. Covid was an outbreak of illness. It was Cine’s risk and bad luck to them, it ruined the economics of the deal for them, but they had already signed up to that deal. Cine also argued to the court that the business was not being run “in the ordinary course of business” (which was a requirement of closing the deal), due to covid. But the judge pointed out that did not override the fact that Cine had accepted the risk of “outbreak of illness”. They signed the documents. They took the risk. It went wrong for them.
I do not understand why so many investors seem to assume the case was wrongly decided. It is actually quite simple and most lawyers I know who looked at it agree it was correctly decided and reflects correct Canadian law (I am a lawyer, by the way). It might get overturned (I hope it does), but there is nothing strange or unbelievable or obviously wrong in the judgment.
You are a lawyer in which country Andy111?
They agreed to buy plex on the basis that plex will not exceed 750million in debt. CINEPLEX stopped paying landlords to the tune of 200MIllion to keep the deal. That is the ordinary course argument. You are saying "outbreak of illness" frees cineplex from committing to the terms of the deal to begin with?
Also. What do you think of the synergy damages? Why would plex benefit from synergies when the relinquished their shares to the new owners(CW)?
If there is even a whiff of this case going the Cineplex way, I can see the share price rising just before to allow bug holders to get out, and then it crash on the news. Seems that's how most balls are rolled in the markets.
@Andy
This is very well trodden ground on this bb
The appeal statement provides clear rebuttals to the points you have made. Particularly around risk allocation of the pandemic that the Mae clause allocates risk to Cine as a condition of closing ie they couldn’t back out of closing the deal simply because a pandemic hit NOT that the business could be managed outside of the parameters of the whole agreement because a pandemic hit - that’s a difference in argument that both sets of lawyers have been arguing
Most sensible people on this board agree the breach can be argued both ways. Personally Im not that interested in one lawyers option or judge but I would love to have a straw poll of say 100 or 1000 lawyers or judges to get a better sense of how likely the majority would be to side with which argument you as there is never going to be one correct or incorrect interpretation.
Synergies is a whole other discussion…
The real question I think is for Plex. How they are going to see their money if they are asking for $1bn and Cine value is at $315m with $8bn debt? I am betting for an out of court resolution.
It might be an out of court settlement, but i think any outcome will keep the share price low for quite some time.
Anyone who bought at 80p+ are goi g to be here for a few years waiting for a profit... and I cant see any kind of dividend for a long time either.
I'm not de-ramping thus share... I'm invested. I'm just being realistic with my choices.
Funds are locked away in an account that will mature one day... but not for a while.
It is pretty simple, you will only see a re-rating as soon as the cineplex case is cleared out. Court hearing 12/13 oct, court resolution in 1q23.
For the RCF, end of june, let’s hope for a waiver or refinancing. Paying back will be a tough one, but we won’t certainly see a breach. They are doing everything they can to solve this.
Monthly results only started to improve as of March. March was positive cash flow, april slightly positive, and may/june/july will do much better.
At interim results we will see an adjustment to the base case scenario, they will lower the assumptions. So far, everything is under control. It is not opportune to refinance existing debt.
In case of shortage in liquidity, cine still has some options to monetize. In the end, they target a reversal od the court hearing, a significant re-rating of the shares followed by an equity raise to lower leverage.
If anyone thought this is a 80p stock and does not think this is a bargain at 23p, he should have sold ages ago.
Everyone else can average down until the dust settles.
BlueBuxton, I am a UK M and A (mergers and acquisitions) partner in a major international law firm. I have done this type of work for 30 years.
OK Andy111 for now let's assume you are a UK lawyer and not a troll from the Plex forum...
Where are you on Judge Barbara's calculation for damages being based on "lost" synergies. Synergies are only realised when companies are merged and this didn't happen
@Tegop, SP was £3 in 2019 and £1 in 2021 but it would be grave (for wealth/capital) mistake to use historic performance as reference.
Back then it was a different business with profits and accumulated capital, losses/writedowns have erased it into sub-zero territory, new operating environment insures further losses for years and equity is already negative, technically (balance sheet test) it's already insolvent.
If it goes into admin then secured creditors are at risk of getting in loss as fire-sale asset value is very likely insufficient to cover asset-backed liabilities (half of goodwill and intangibles will be revalued for 60+% less, property/plant/equipment category will go down for 50%). Unsecured creditors will get either nothing or single-digit pennies in pound (more than 90% loss) obviously leaving nothing to shareholders.
Debt maturity profile (and 10%+ interest charge on some categories of it, up to slightly above 15% like with B1 term loan maturing in 2024) under these circumstances is another red flag waiving (pages 140-142 of 2021 annual report).
Refinancing (as it matures in 2023/2024/.. and so on) or capitalizing interest payments under current increasing market rates conditions doesn't look like makes things better.
OPEX (incl. interest on debt) is sitting above £1.5B per annum and there's hardly much left to negate it on gross profit or gross margin side (revenues net direct costs).
This $1B Cineplex court ruling would be (or already is even if enforced partially, e.g. via lower settlement with them) pretty much game over for CINE. all IMO.
Well said, even a blind man can see that, alot don't want to believe it, the sp doesn't lie.
Yuri, I agree with you on paper. But Cine could negotiate with the existing investors for a hair cut like the EU have done with Greece. Would you prefer having 60/90% loss if I go into administration or a hair cut of 15/20%?they are in stake with almost $10bn not a couple of hundreds of million. Don’t forget that 40% of Cine’s debt is due to acquisitions even the issue with Plex. One more Q4 2021 generated positive cash flow so do the Q2 2022 for 2022 no need to raise more cash for our operating expenses apart for Plex. And Box Office is growing diversification has been implemented by lots of cinema chain and as well as cost cutting. What I meant is that investors know that Cinemas are not dead and they will make profits in coming years so don’t you think they would prefer waiting rather than losing 90% of their money?
@Yuri.F
Or, Lenders can can negotiate with CINE, who they supported through a pandemic and is more and more likely to recover than go bankrupt.
Cine had a positive quarter with just Spiderman. We expect at least 4 giant movies just this summer. Closing of unprofitable sites, opening of new sites, some cost cutting measures, ticket price hikes, 4DX, Imax, etc.
We cannot pretend to understand the company's full finances and future.
Expect court ruling to fall in favour for Cineworld in October. Still not a single person can explain the lost synergies for a company that would cease to exist. Feel Mooky has things up his sleeves but is either being coy about it or cannot reveal details. Time will tell.
Current net debt (pre-IRFS 16) is in fact $5bn (this excludes future lease liabilities) as opposed to the often $8bn (post-IRFS 16) that is usually touted by the press.
The current debt makeup is 68% acquisition from 2018 Regal takeover ($3.4bn), so a lot more than the 40% mentions earlier by one of the posters.
With regards to a potential fire sale and liquidating of assets like property - well the said property is in fact non-existent. Cineworld completed the sale of its 35 owned venues acquired through Regal back in 2019 and then leased it back “in line with our leasehold operating model” as Mooky was quoted. Mooky has a very good relationship with EPR Properties the principal landlord for Cineworld in the US.
With a current market cap of £320m, Cineworlds only tangible assets are popcorn machines, laser projectors and some signage. The rest of their value is derived from their business model which, pre covid was profitable every year. So in summary, let the threats of liquidation, debt for equity come. They won’t even touch the sides and as such are non viable avenues of raising capital. For Cineplex who currently have an unenforceable judgement which is due an appeal hearing in October, have nothing but a worthless piece of paper. This is why Cineplex share price doesn’t reflect a cash injection of $1bn CAD.
The current debt pile is indeed saving Cineworld and will see that lenders with even the slightest sense of business acumen will support Cineworld and stick it through with them, else they get nothing and a large commercial property landlord is left with an empty estate and no rivals like AMC, Cinemark coming to take them any time soon.
Cineworld shareholders can sit back and continue to wait this recovery out. Shorters can continue worrying about getting sufficient stock to close their positions. Imagine the news once Top Gun sees cross-demographics turn up in huge numbers? MCU is already getting the teenagers and young adults back, the movie slate for this summer and the coming seasons should cement regular movie going for a more diverse demographic mix and when this happens, it is going to be a very nerve-racking time for the funds. Don’t you think, Yuri?
Source: https://www.proactiveinvestors.co.uk/companies/news/222052/cineworld-inks-us270mln-sale-leaseback-deal-for-us-screens-special-divi-due-in-july-222052.html
BlueBuxton, you ask :
“Where are you on Judge Barbara's calculation for damages being based on "lost" synergies. Synergies are only realised when companies are merged and this didn't happen”.
The whole point is that the merger didn’t happen, but damages are awarded to compensate Plex for that. The damages are designed to put Plex in the position it would have been in had Cine complied with its obligations and not tried to cancel the deal. Synergies just really mean “economies of scale”. Most of the economies of scale if the deal had gone ahead would have been for Plex’s business. There was an audit report presented to the court which calculated these. The court agreed and awarded Plex those damages (although other claims Plex made were rejected by the court). Cine lost. They botched the deal and the documents they signed did not allow them to walk away from the deal they struck, which had become a bad deal. The covid risk Cine’s. To be fair to Cine it was totally unprecedented and unexpected. That doesn’t matter. They was no conspiracy. No bias. No corruption. There are valid arguments on both sides but, as I said in the original message, all the posters who think the decisions was obviously wrong or flawed and the appeal will certainly win, have got it wrong. It may not be what you want to hear, but I cannot help that.
The synergies calculation that the judge accepted is not the only one on the table. Judge conway merely accepted the one that benefited CINEPLEX the most. This is another canadian firm commenting on the issue. I am sure CINEWORLD's appeal lawyers have more answers.
https://www.nortonrosefulbright.com/en-ca/knowledge/publications/7ee6f89b/expectation-damages-for-lost-synergies-a-closer-look-at-the-ontario-superior-courts
Thanks for posting, Tegop. From that legal analysis, this resonated the most and reaffirms my belief that Cineworld’s current debt load is indeed a blessing in disguise.
“ Cineworld is arguing that any synergies would belong exclusively to the purchaser; Cineplex was not contractually entitled to synergies, and so they are an improper measure of expectation damages. Also, failure to discount the purchase price DEBT that Cineworld would have IMPOSED ON Cineplex after closing puts Cineplex in a better position than if the contract had been performed.”
Cineworld’s appeal process is a great three prong attack:
1. Dispute the debt covenants that Cineplex breached by way of out of ordinary business practice
2. Synergies were to be realised by the acquirer not the acquiree
3. The debt burden on Cineplex was not accounted for as part of any synergies which is a great point should points 1 and 2 be deemed unsuccessful
I believe before October, both groups will return to cash positive earnings as the movie slate matured and admissions show confidence of a return to pre-covid at which point an out of court settlement will be reached.
"Also, failure to discount the purchase price debt that Cineworld would have imposed on Cineplex after closing puts Cineplex in a better position than if the contract had been performed."
To put it simply, Cineplex agreed to sell their business for 1$ and presented an estimate that Cineworld can make 3$ out of it. Judge Barbara awarded them 3$ compensation. They must be in some fairytale world.
It is like a blank cheque awarded to CINEPLEX at the cost of cineworld to be paid in full.
Andy "The whole point is that the merger didn’t happen, but damages are awarded to compensate Plex for that. The damages are designed to put Plex in the position it would have been in had Cine complied with its obligations and not tried to cancel the deal. Synergies just really mean “economies of scale”. Most of the economies of scale if the deal had gone ahead would have been for Plex’s business."
Do not agree. Why only award synergies and not own the cine debt? Because of deal had gone through then Plex would also own the cine debt. So will Plex also pay to Cine lenders for clearing the debt? Why cherry pick only synergies? Why not take and own CINEs debt too?
@Andy, good evening.
The idea that Cineplex is actually entitled to $1.23bn is a complete fantasy. This is why despite Cineplex being awarded an amount that was 2x the amount of their mcap, their sp barely made a move.
You say that the synergies calculation is fair, well congrats because you and Judge Barbara are the first amongst a global population of over 7 billion to think that. There has never been any such ruling with this kind of synergies calculation from my understanding.
You are indeed correct that the outbreak is not a valid reason to exit the agreement because it was excluded, but that doesn’t mean Cineplex gets a ‘Get Out of Jail Free’ card. If Cineplex acted perfectly well during the entire time, then yes, I would say that they were entitled to that amount CONDITIONAL UPON no wrongdoing at all from them. But that was not the case, we saw the Queensway acquisition which was a breach of the agreement in my opinion. Further, Cineplex failed to act in line with normal operations. This wasn’t small either, they were doing the precise opposite of everyone else. Therefore, if Cineplex is entitled to the whole $1.23bn sum, then that means CINE is also entitled to something as well. If Cineplex would like $1.23bn for these so-called ‘lost synergies’, then how about we get an award for the hundreds of millions of extra interest expense we incurred as a result of taking out extra debt to fund the acquisition? I also must say that because the money for the acquisition was ringfenced, this meant CINE needed to take out further cash in order to fund their own business, so the interest from that should also be added, hence I think it is in the hundreds of millions.
This is a black and white matter in my opinion, yes CINE may have not acted completely in line with the agreement, but neither did Cineplex. Both have committed wrongdoing, and consequently this should be nil-nil. At worst, CINE should pay the breakage fee in the agreement and everyone goes their own way.
Brilliant Mountainous, yes exactly :-)