Member Info for HNS_77

Hi all,

I messaged the Ontario court of appeal and they have sent over both the full appeal and cross appeal documents - I will figure out a way to share these and let you know assuming I am allowed or alternatively you may want to email a request yourselves

All - I was as bewildered by how this reads as you all were but it is a credible news source Canadian Press the very same source that reported the appeal is it some bizarre game of chicken - appeal and risk being asked to increase damages I don’t know what’s going on here!

Some further detail on the cross appeal from the Canadian press - CP want to use the appeal to increase the award further…what’s the strategy here I wonder

https://www.cp24.com/mobile/news/cineplex-seeking-alternative-damages-if-appeal-court-rules-in-cineworld-s-favour-1.5758514

In documents filed with the Ontario Court of Appeal on Thursday, Cineplex argues it should be awarded more than $2.8 billion in damages because of diminished value and loss of performance that occurred after Cineworld walked away in June 2020 from its $2.18-billion deal to buy Cineplex.

The only other thing I will say - without delving into the court case can of worms is that CP team had the brass neck to propose a beyond ridiculous way of calculating damages for their 1st option ( based on the shareholder premium) then saying "but if you dont like that completely improper way of doing things - here's another! and another!" -

In a normal situation say for example I am buying a house for £1m and a offer £50 quid (i.e. a completely idiotic proposal) then that should in some way colour my logic for any follow up offer and credibility - but not in this situation- its more like - okkkk you made a completely ridiculous proposal as your first damages claim but I will treat your next one as if it from a perfectly reasoned position and I wont assume because it is more technical then the first that you are trying again to pull a fast one as you did on the first suggestion . The crazy thing is this tactic actually worked!

The only two statements from the Cine appeal that have been reported in the press are that that the judge made
"extricable legal errors" and that "The appeal argues Conway made a "palpable and overriding error of fact," when she ruled Cineplex did not break the terms of the takeover agreement."

It makes no mention of the appeal challenging the synergies calculation but perhaps the reporting media (and this was one report syndicated by hundreds of outlets so the same basic story) didn't cover the damages challenge in the appeal.

I speculate the appeal would also have focused on the damages calculation - how could it not given CW rejected the very basis of using synergies as a method of calculating damages and maybe that is what CP are responding to in their cross appeal.

We wont know until the full text of the appeal is published but seems a reasonable assumption to make

@onlyonewhufc

What FI said.

In this situation I apply a straightforward thought experiment - taken to the extreme if the fine on CW for this judgement was 1 penny how many of us would care about CW being in the wrong and argue the rights and wrongs of the judgement? - I expect precisely zero - we would be happy for CW to pay the penny fine and give it not a single thought - so clearly it’s the damages calculation that matters most everything else is just noise

CWs greatest victory last year was actually losing the Regal shareholders court case - those askholes were arguing for a 47% premium be added to the price paid for Regal shares in 2018 and CW ended up ordered to pay 2.5% - so although annoying to have lost the case was one CW could live with compared to huge crippling damages they could have faced.

One further thing on this the ordinary course judgment will be almost obsolete post covid as I expect virtually every m&a transaction will now bake in pandemic clauses into MAE aspects. The damages calculation method is what will live on as that rationale (if it can be called that) I expect can be applied whenever a failed transaction is contested whatever the background case which is why as some legal commentators have suggested it will be a matter of intense scrutiny on appeal

Personally I wouldn’t read too much into this all it reveals is that Cine have challenged the judgement and the damages award and CP have responded to say if you accept the judgment but not the damages then award us another way to cover themselves in all eventualities

What is more telling is numerous legal commentary on the case thus far continuously refers to the damages as “novel” and other phrases that suggest it’s going to be a hard sell to a group of appeal judges who will have to endorse an award that is so unique it will be written into case law forever more - not to mention such a unique judgement would still require enforcement by a U.K. court to penalise a U.K. company let’s see how that plays out…

With covid cases reported as dropping fast in some of regals biggest territories (Florida , NY and Georgia) perfect timing for the next slew of big cinema releases

@ Wellington - Here is the exact wording from the judgement below

$163m - original annualised benefits accruing to Cineplex as per E&Y report

Then Mr Rosen does his calculations accounting for Covid etc (that new annualised figure is not presented in the judgement) and comes to a total of $1.23bn (CAD)

My simple understanding of this is that there was not going to be a sudden uplift of $1.23bn as a result of synergies but that it reflects an adjustment of the original $163.5 that E&Y presented as part of the package when CINE were trying to get the deal agreed with banks

[171] Prior to entering into the Arrangement Agreement, Cineworld engaged Ernst & Young to
prepare a synergies report (the "EY Report"). That report estimated $163.5 million in annualized
combination benefits to Cineplex, comprised of cost synergies ($88 million), revenue synergies
($72 million) and efficiency synergies ($3.5 million) that would result from the combination with
Cineworld. The cost savings to Cineplex resulted from, among other things, removal of the
Cineplex board, headcount rationalizations, and spending reductions on the operational side. The
increased revenues to Cineplex included additional fees from film studios to play trailers during
pre-show time, additional online booking fees, and increased concession spend at theatres.
[172] Mr. Rosen calculated that the present value of those synergies that were lost to Cineplex
when Cineworld terminated the Arrangement Agreement was $1.2366 billion (before prejudgment interest). His methodology was as follows:
• he identified the synergies using the EY Report;
• he utilized only those synergies that would have been realized by the corporate entity
Cineplex and excluded those that would have been realized by Cineworld or Regal. He
said that of the $176 million in total synergies projected in the EY Report, $163.5 million
was expected to be realized by Cineplex;
• he discounted the expected benefits to account for the delayed realization due to COVID19; and
• he discounted the future cash flows to a present value as of the date of breach.

@ Kick the Puss - UK court enforcement it is a very strong option - any enforcement of the judgement has to take place via a UK court (assuming CINE resisted which of course they would)

I don't have the link to hand at the moment but it was called the Canada and United Kingdom Reciprocal Recognition and Enforcement of Judgments Act and there are routes (admittedly limited) for judgements to be smacked down when they reach our shores and I found a decent number of those that were.

There is nothing contained in the judgement suggests an immediate liability of 1.23bn is payable - in fact quite the opposite - although not spelled out on my rough calculations it looks like those synergies are the total realised over 8-10 years

If this is judgment is eventually upheld and is truly expectation damages as stated "putting the wronged party in the position they would have been in" why should it be paid all in one go and force the sorts of measures suggested.

Assuming (by the time this eventually gets resolved) Cine has already got back to normal trading (if they haven't then this judgement would be the least of our problems!) then why should this have such a drastic impact on the share price if they demonstrate it can be paid over that period and the business can still function

From pre covid they had enough money to pay a healthy dividend and still had money left over and that was with a share price north of £2 so why would it be such a catastrophe if Cine have to pay this annualised (again assuming it is not reduced at all )

I am here to be educated so reasonable challenge and debate welcomed

This is the rampiest message I will ever write on the topic of the sp recovery - this share has the volatility of a micro/mid cap bio tech stock with none of the downside i.e. realistic possibility of 300% gains without the likelihood of it being worth zero or near enough that due to a total failure in the product offering

I topped up slightly when the judgement came out (sadly my wife who is also a CINE holder decided to jump ship) and again a few days later so got my average down slightly but still not at the levels today -anyone looking to invest in an equity today would imho be silly not to have even a small punt at these levels (not guaranteed but then what is other then death and taxes)

The business makes money, is continuing to make even more money and has a multi billion $ industry in its corner supporting it (i.e. Hollywood) who's future depends on exhibitors like Cine being successful

I know the bear case well - not is all rosy in the garden debt/court case/ etc etc but find me a another business that has been impacted by covid where there is a realistic prospect of a 300% return without needing to even touch or go near its 2019 share price despite demonstrating it can generate revenue at those levels! - perhaps it is sitting behind that Motley Fool Paywall but somehow I doubt it!

@lpd yes that’s the one - thanks , add to this various legal views (not mine) I have been posting that talk quite disparagingly about the synergies methodology and it’s novel approach - this is not CW resisting there is a real risk they end up with zero after a very long wait.

I previously posted an analysts assessment that pitched success of the appeal at 25% chance of recovering damages

If for a moment we accept that as the outcome then CP are essentially relying on a 75% chance of ending up with nothing after waiting 1-1.5 years not including enforcement via U.K. courts with potential of being refuted (as per the treaty between U.K. and Canadian courts) which will extend that to possibly 2+ years

on top of which as has been noted this will should not be a windfall payment as expectation damages if accepting the synergies argument would have been realised over multiple years the damages are an aggregation of that benefit - eg they don’t get paid in one big stack - I expect given they wanted to sell and get out in the first place that is a lot of time for the senior management to wait to cash out with an inflated stock

Those are a lot of hurdles to overcome by to getting this payout for this “novel” so I can see there would be an appetite for a realistic settlement - what that figure ultimately is no one say but is certainly a lot more then transaction costs that CW wanted to pay and significantly less then what CP have been awarded - random guess most could live with circa £250m- £300m settlement for CP to sod off but that this would only be agreed once CW are really motoring in their recovery and debts being serviced

In the meantime patience will be rewarded but constantly expecting huge uplifts on these types of updates will leave disappointment and mental health impairment for many

A welcome and very satisfying update from the management team imo

- clear and objective data showing the improvement trajectory in box office performance
- the appeal is lodged and as per predicted timescales this will take in the region of 1-1.5 years to get to a hearing if not resolved beforehand
- the business is clearly recovering strongly despite headwinds such as the resurgence of covid towards the end of the year

Sadly there have been more box office disappointments then expected i.e. Matrix, West Side Story to name a couple and had these performed as anticipated better then would have seen much higher revenues - so it all comes down to the film slate and looking at 2022 its quite clearly much stronger then 2021 - couple that with Covid looking to be in retreat with the US to follow shortly then this is set up for CINE to hit and exceed targets

@Ian, - so you were just guessing - thanks for clarifying that

This is from the Supreme Court of Canada - I cant say if the same rules apply for the lower court but their position is

2. Deadlines in Weeks

Where the filing and serving are to be done within a specified number of weeks after a specified day or event, that day or the day of the event is not included but all other days, including weekends and holidays, are.

3. Holidays/Weekends
As a general rule, holidays and weekends are included in the calculation of time. -

the only exception seems to be IF the appeal deadline falls on a day when the court is closed - which is obviously not the case here

https://www.scc-csc.ca/parties/deadlines-delais-eng.aspx

@Ianharding - there is no mention in the information I have reviewed about accounting for Christmas or other days but if you have other information to the contrary please share

https://www.ontariocourts.ca/coa/how-to-proceed-court/civil-family/civil-appeal/

@Mountainous the judgement was released on the 14th we got the RNS on the 15th so perhaps that's where we are missing a day

@mountainous - maybe I am counting my calendar wrong but if the judgement was on the 14th and assuming the day 1 of 30 is the 15 this gets us to the 13th as final appeal submission day - it is early so possibly my brain hasn’t fully woken up yet