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The biggest mistake Mooky has made was not guessing that a 1 in a 100 year global pandemic was about to hit just as he was about to sign on the dotted line to merge with Cineplex
Other then that they have had to contend with
Repeated lockdowns with government mandated shutdowns and social distancing (haven't used that phrase in a while)
Studio's streaming or delaying releases i.e. less films to exhibit and therefore make box office revenue
Production slowed down - again covid
Films that should have performed much better but didn't live up to the hype because, well, they just weren't that good - think Morbius, Matrix, Fantastic Beasts, Light Year, Strange World etc etc
A judge who thought it was sensible to award Cineplex $1bn in damages despite that having never been used as a rationale to award damages ever in the history of M&A court cases - and happened to be in a tight friendship circle with the Cineworld Execs .
A **** storm combination of factors has conspired to drive this thing to where it is today - I am no cheerleader of Mooky but anyone with an objective take can see he has been dealt a terrible hand -of couese he will act to secure his family first and if that means shareholders under the bus I cant see why he wouldn't - I hope beyond hope that as a major shareholder his fate is somewhat tied to ours.
My biggest concern at the moment is the potential flop that Avatar 2 could turn out to be. So far this year I have been keeping a tally of my predictions which sadly a number have been correct e.g. Strange World and Lightyear - and these crappy releases have done Cine no favours
I hope I am proved wrong this time but cannot glean any excitement from Avatar 2 - for me doesn't look like a film with a story I want to engage with rather reminds me of those high res demos you see playing on a loop to show off the biggest tvs screens in currrys or john lewis
As said I hope I am proven very wrong but I have already assumed it will do poorly - my bright side is 2023 where I can see some films that will bring in the crowds like Indiana Jones 5, Mission Impossible, Super Mario Bros to name a few and that is when I see the real recovery start to kick in and consistently generate a decent box office revenue heading back to 2019 levels
On the topic of the latest announcement - All we can go on is the range of statements made so far
Cine will actively market the business for sale
They are now stating they will only do so as one entity rather then selling pieces
Shareholders would be severely diluted in the event of a deleveraging transaction
What Cine can achieve for the equity portion continues to be the massive unknown - the bright spot in this is there are business with deep pockets around who have lost money focusing on failed experiments (streaming) so picking up the second largest cinema chain at a bargain price makes commercial sense to me so all I can do is hope that Mooky has the chops to negotiate that deal and enable us and him to leave with a decent pay off.
(Bloomberg) -- Cineworld Group Plc said it intends to emerge from bankruptcy intact after senior lenders were said to be considering a sale process for its east European operations.
The London-based company filed for Chapter 11 bankruptcy in Texas in September to cut a near $9 billion pile of debt and leases.
“Cineworld remains committed to working with its key stakeholders to develop a Chapter 11 reorganization plan that seeks to maximize value for the benefit of moviegoers and all other stakeholders,” a spokesperson said on Sunday. “Cineworld has not initiated, and does not intend to initiate, an individual auction for any of its US, U.K. or RoW [rest of world] businesses on an individual basis.”
Read More: Cineworld Lenders Are Said to Eye Sale of East European Theaters
The statement follows a Bloomberg News report on Friday that Cineworld’s creditors had held talks about breaking up the chain and selling its eastern European operations. According to people familiar with the matter, who asked not to be identified discussing private deliberations, the company’s largest senior creditors were weighing the sale of Cinema City, Yes Planet and Rav-Chen, an Israeli operation. The eastern European operations include cinemas in Poland, Hungary and Romania.
Covid-19 shuttered theaters worldwide and throttled movie production. Cineworld, the world’s second-largest theater chain, has yet to recover to pre-pandemic levels.
Any guess on what the business could be sold for is is pure speculation but I am happy to add mine here
Pros
The trend for cinema was not downward pre covid - 2018 was the highest box office ever and 2019 was no slouch either at 11.3bn- hardly a sign of systemic industry decline even in the face of a growth of streaming which mainly impacted market share of dvd rental and terrestrial/ satellite channels
The business was paying a handsome dividend after servicing regal debt and other outgoings
A solid history of deleveraging to keep sensible manageable levels of debt in the business
The cinema business has seen significant bounce back from 2020 - 2bn then 4.4bn and now forecast to end around 7.5bn -no reason why this will not continue back to previous profitable levels when the business was worth in excess of 8bn
Supply of film rather then reluctance by consumers due to covid has been the key rate limiting factor to getting back to baseline - 50% less - this will all but disappear moving into 2023 and beyond
Cons
Debt accumulated due to covid closures
Adverse judgement in Cineplex case
Slower then forecast recovery
What a potential buyer has here is an opportunity to buy a business that is going through pain but there is a clear route to future success as opposed to a business in fatal decline due to its permanent changes in the trading environment like so many others that have gone to the wall.
A future buyer doesn’t need to make root and branch changes to the business model or pour lots of investment into the business- it’s just a waiting game
With Mookys shares on the hook one would hope he could negotiate a decent deal of $6bn at least with the possibility of the CP damages award “crammed down” by the c11 judge to a vastly smaller sum in the event a future appeal failed as part of renegotiating existing creditors
That said my fear is just like when lenders repossess a house they don’t care what it gets sold for as long as they get debt repaid so selling this business for 5bn and leaving equity holders with zero is always a possibility if they have to power to do so
I don’t know that is it undisclosed it isn’t really material information unless someone is attaching it to an unfounded claim that to it as someone seems to be doing on this forum
What I will say is that the statement was accompanied by saying that banks running deals usually have a stake as a lender to an extent it would very unusual if they didn’t so on that basis could assume it is generally “known” they will have lent money in the deal - but that isn’t to say things have stayed the same since the deal was done in 2018 and certainly no confirmation that HSBC ever were or are still the biggest lender
Hexam - I agree - I am not validating any of the rest of those statements made which seem very speculative
I can’t point to a specific link or evidence only that I happen to know someone very senior in the regal deal team - I asked them directly and they told me
Both Barclays and HSBC acted as lenders and also book runners for the deal - so in fact you are both right
@AllKap
The article is mostly speculatation on what is known - nothing wrong in that but they don't quote any potential new sources that would suggest they know any more then what is in the public domain - is this the end for existing shareholders? no one can say for sure except perhaps Mooky and his inner circle or perhaps even they might not either
What seems certain now is there will be no liquidation (Chapter 7) when C11 that was the initial fear and headlines when this was first announced and these boards were full of that narrative that cine was going to close and a fire sale on popcorn and pic n mix was imminent
When all is said and done my view (FWIW) is that there is an intrinsic value of the business - it is not worthless, it is cash generative and will continue to progress back to it's previous levels after a couple of years and eventually throw off enough revenue to pay its bills, debt interest and after a bit of intensive deleveraging get back to generating enough cash to pay a healthy dividend - anyone can see the trend line in revenues year on year since 2020 it is not rocket science
M&A transactions are going on all the time even in this environment and I am not only thinking about the $44bn that Elon Musk paid for twitter. If the C11 process can substantially reduce any potential Cineplex award as I have said previously my realistic best case scenario would be a buy out at around 6bn - which would yield about 60p per share - for a patient buyer this offers good value given the points above notwithstanding synergies that the right buyer could also get from the deal.
I have no idea what will happen - and of course I could be completely wrong as any of us could be!
As at December 2019 Cine had
A total debt of 3.5bn
A Mcap of 3bn
So to buy the business plus debt back then it would need to be worth at least 6.5bn based on perceived market value (not assuming a premium on the equity a buyer might likely pay to aquire Cine to realise potential synergies a la the cineplex deal)
Where we stand now is
Mcap of 80m
Debt of circa 5bn
Total market value of 5.08bn
So if a buyer took a view (like most on here who bought into Cine) that Covid was a black swan event and cinema will recover back to 2019 levels then buying a business for 5.08 that was recently worth 6.5bn seems like a pretty sweet deal
So at that level most of us are screwed including Mooky.
As I argued previously if that price was increased not to the previous equity level of 3bn (now fairytales in my opinion) but even 5.5bn or possibly 6bn that roughly gives a target price of between 30-60p per share that most of us could live with and an amazing result for the late comers .
I know I have over simplified this but would still reflect a good price for a purchaser given the pre covid value and revenues that enabled Cine to pay a dividend with the cashflows as they were back then which in time will likely return as box office releases reach normal levels.
@bulls just to add on your point from my reading of that article that was posted some of the creditors like studios/ distributors are getting their full payout due to their critical nature to the business and are put in a seperate grouping to “impaired creditors” like CP - this divide and conquer strategy I hope leaves CP isolated and therefore doesn’t alienate the core business suppliers
The CP judgment of $1bn is pure upside for only one party in CP - shareholders and shareholders alone - have you seen how much The CEO and CFO own of CP combined : 0.30%! That’s nothing compared to the stake Mooky and his team own of Cine - PI’s own 75%!
They have no real incentive to keep fighting for this payout so I hope they give up or are forced to through the “cram down “ process mentioned in that article we continue to wait and see….
@bullsbears
My take on cp - they know they can’t be greedy and the 1bn is fantasy
They need to agree to a realistic plan - what Cine are proposing we don’t know yet but for arguments sake if they are told “accept 5 penny on the dollar” so IF the appeal fails the max CP can get is $50m - clearly their ambition is bigger then that given the media reports that they thought they could take regal
So either way I think C11 will see CP resolved in a way that still sees CW as a viable purchase for a buyer - one would think if they are at loggerheads the judge can force a decision based on what he thinks is reasonable
@Patience - yes agree depends on what the market is like and how many buyers see Cine as a good target to acquire - would be lovely to see the likes of Amazon & Netflix & Disney piling in then yes perhaps it could spiral somewhat but even in my wildest dreams I still don't see a price exceeding £1 in the basic modelling I have done using projected future profits - again £1 would see most people crying to the heavens in joyful praise of whichever deity they worship I expect!
Conditions in the market and the health of the business will ultimately determine the price - right now Cine is in no place to call the shots . If creditors are now in the sale that pays their debts they are not incentivised to achieve the best price for shareholders
Personally I am done believing in the world of £2 -I have too many arrows in my back to even dare to dream of that future - if he could negotiate something around $6bn (between £50p-60p) for it I reckon most remaining shareholders would be in (including me) would bite their arm off and call it a day
The only counter argument I can think of to my own concern is that lenders exist earn a yield on their money not to simply have it sitting there doing nothing i.e. if my scenario played out they would have to lend it somewhere else which might be less then the yield they would achieve on a recovering Cineworld paying down its debts is better then a newco Cineworld buying out the debt and them having scramble around to achieve a comparable yield elsewhere then perhaps its better for them to keep Cine afloat.
Or the buy out is a realistic scenario but its not all or nothing and that Mooky manages to negotiate something for his/our equity i.e. perhaps if he could sell the business for $5.5bn that would see shareholder buy out at around 30p which Mookys 20% would get roughly $100m from that - so perhaps that plus he does get reinstated with a decent signing on bonus and new shares and we can all go home with losses we can live with or for the jonny come latelys a lovely profit.
My biggest concern from the most recent developments is this:
If as stated in the media coverage that creditors will be working with Cine to market the company for a buyout. What is the chance that this whole process ends in a buyout that exactly matches the value of the debt with nothing for equity holders i.e. a valuation at $5bn- that would cover the DIP financing plus all the other outstanding debt and leave us all high and dry
Of course that would hurt Mooky with his 20% so unless there is some way he can benefit from such a sale legally outside of any arrangement that is too complicated and legalistic for us to understand - i.e. is there some way he could negotiate some deal to be re-hired and given shares and a signing on bonus of $100m by the new owner - this is my worst case speculation.
The reason that creditors would support this is because all their debt is paid back, the buyer gets Cine for a decent price and it doesnt matter how well or not the box office does. If Mooky can come out of this with sufficient amount to cover his pain I think he would do this in a heart beat.
I obviously do not want such an outcome but that for me is the worst likely outcome as I beleive if left alone to recover we will see a massive rise in box office based on the back end of 2022 and great line up of product in 2023
@Bonkers
My limited understanding of this situation
The 1.95bn DIP funding was known about previously which included the 150m ie the 1.95 less the 1bn less what the judge already agreed Cine could draw down
On that basis the news was not deemed “material” eg the fact that creditors dropped their opposition to it was newsworthy but it didn’t meet criteria as material given it was then participating in a process that was already known
As for todays meeting it’s just too vague to really know from the papers I can read as to how material it actually is.
“Thank you for your email which I have passed to the relevant personnel within Cineworld.” - their exact response
As I understood the appeal process is/was seperate to Conway (what an apt name) - the three Canadian appeal judges looking at the case dont involve her but the aim was to get the appeal thrown out on the basis the original judgement was tainted
Having read the article someone shared about the creditors panel in the C11 process and that Cineplex is a majority due to the ridiculously huge award it doesn’t specify what happens if they do not agree to the plan eg if it was proposed they would have to accept 1 penny on the dollar of any successful appeal award -
I am assuming if there was an impasse that the Judge presiding over the bankruptcy has the power to force Cineplex to accept that lower award and the case is then kicked back to the Ontario appeal court to decide on the actual case which no one would care about if it was now reduced significantly
@lth Cine - yes I got an acknowledgement from Scott in the IR team - whether they did anything with it your guess is as good as mine…
Genuinely interested to hear a spectrum of views on this bearish or otherwise
Pre chapter 11 the percentage split between retail and institutional/private companies holders was 30/70 respectively.
Records of holders latest split it is now 40/60.
So retail has risen by 10% - why do people speculate that there hasn't been a bigger transfer to speculatively retail and a sell off by institutions since the initial announcements if the prospect of shareholder wipe out is all but an inevitability?
We can account for 20% of this being Mookys shareholding but that still leaves 40% of institutions holding
Perhaps they are so badly burnt like us PIs they cant be bothered to sell versus gambling on a spectacular recovery taking place - while that is a position PI's can take I wouldn't have thought that's a criteria or judgement call these types of investors can use?