(Sharecast News) - Cineworld has pulled out of its $2.1bn (£1.7bn)) acquisition of the Canadian movie theatre chain Cineplex, citing breaches of the companies' agreement and a "material adverse effect".
The FTSE 250 cinema group did not say what the breaches were or go into detail about the adverse effect at Cineplex, which is the biggest cinema chain in Canada.
Cineworld said Cineplex denied breaching the agreement and that there had been no material adverse effect. Cineplex has accused Cineworld of failing to meet its obligations under the agreement and Canadian law.
The UK company said this was not true and that it would strongly defend any allegation that it failed to meet its obligations. Cineworld said it could also seek damages from Cineplex for its breaches of the acquisitions agreement. Analysts have speculated that Cineplex could breach the agreement's debt terms, giving Cineworld the chance to walk away with the cinema industry thrown into turmoil by the Covid-19 crisis.
"Cineworld has become aware of certain breaches by Cineplex Inc of the arrangement agreement relating to the acquisition. In addition, a material adverse effect has occurred with respect to Cineplex," Cineworld said. "As a consequence of these matters and Cineplex's unwillingness to cure the breaches, Cineworld has notified Cineplex that it has terminated the arrangement agreement with immediate effect. The acquisition will therefore not proceed."
The companies agreed the cash acquisition in December when Cineworld said it was "highly synergistic" with about $130m of annual combination benefits. Since then the cinema industry has faced mounting pressures from the Covid-19 crisis, which closed theatres and threatens to affect the industry's longer-term prospects because of social distancing and film goers switching to digital during lockdowns.
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