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* that's "...if they can see that they would NOT get massively..."
@betahighalpha
I can imagine that how the judgement is treated for accounting purposes will be a very tricky one for management and the auditors to agree, not only for its recognition as a provision in the balance sheet (and at what amount), but also this year there are more stringent requirements on auditors with regards to Going Concern.
Previously, management could pull together a statement and the auditors would only comment on it if they thought it inappropriate i.e. by exception. Now however the auditors have to make an explicit statement that the entity is a going concern.
That means that their liability in the event of a business failure is much higher (which was the point of the change) and thus they are only likely to sign off if there is very strong evidence presented to them to support that view - their insurers would demand it.
I don't think that that will be insurmountable, but it may require Cineworld to do or say things that they would rather not - i.e. in the event that the whole CAN$1.2bn is payble (which they will say it isn't) how would they do that to ensure that the company would remain a going concern?
To me, that will probably be the most interesting part of the report because of its forward looking nature and level of scrutiny that it will be subject to.
If it concludes that event of the judgement is paid in full there would be no need for a Rights Issue or Debt for Equity swap but the whole thing could be managed by deferring the payment over (say) five or ten years either by making Cineplex wait for its money or raising a new form of instrument (Super Senior Debt or Preferred Stock) that would use the profit that would have been used to pay dividends to settle the judgement, then I think that would settle the horses and might make more institutions be prepared to take a punt at these prices if they can see that they would get massively diluted six months after taking the plunge.
(I kind of take it as read that the underlying business is fine and will go from strength to strength with management's focus on returning to profitability, the film slate we have and the end of the pandemic.)
@Bigtrader_CD2021
I think our friend owes more to Dunning-Kruger than Modigliani-Miller.
@chilston
Thanks for introducing us all to the concept behind the Modigliani-Miller Theorem.
We fools would never have been able to comprehend that an organisation's Enterprise Value can be split between different sources of capital, such as various grades of debt and equity.
The thing is, different sources of capital get different returns, based on a risk and reward trade off.
The reason why the court case is so important is because unless the award can be abated, removed or delayed, it would likely wipe out the current component of equity, which is the slug that takes the most risk, and would have to be replaced by new equity, usually via a Rights Issue or a Debt for Equity swap.
@Cruis1
Just filter him - otherwise the board just fills up with people rebutting the nonsense.
@HNS_77
Thanks - yes it was discounted to present value so the CAN$1.23bn would be a bullet payment. Paid over a period of time it would be more.
I thought that the judgement had been calculated after applying a DCF to take account of the time it would have taken to realise the synergies, hence the delayed payment would be one of commercial negotiation rather than of legal effect.
Well, the judgement equates to four times 2019s Net Income or 55p per share depending on how you view it and if upheld would likely result in a deeply discounted rights issue that would decimate current equity holders.
So to stretch your analogy, we are waiting to find out whether or not the Conway iceberg has holed us below the waterline, whilst others are counting the number of people sitting in the recently re-arranged deckchairs to watch the latest talkie.
@OhhAhhCantona
Thanks for that, especially as it was another one that Babs Conway did. The Appellant thinks she really messed it up!
I think HMSO are in a sweet spot right now:
- new management team are bedded in and about to announce their strategy;
- transaction volumes are increasing which opens up opportunities for deleveraging at reasonable (not firesale prices)
- valuations should start to pick up as footfall gets past the pandemic and there's lots of pent up demand for people wanting to leave their houses and return to something resembling normality
- rent rolls should stabilse and be more predictable as retailers (or their replacements) start to earn money again
- inflation picking up means people want to hold real assets such as property and HMSO looks like a bargain.
All in all, for a two to three year hold period this could be north of a £1 by then.
Obviously a lot could still go wrong, but it's starting to feel like we have turned a corner and having anchor investors of a SA property company and a Dutch pension fund gives me comfort.
@OhhAhhCantona
I agree - very high stakes just to say the judge got it wrong, but I presume that is simply the most eye catching part. They will no doubt also argue that the methodology for calculating quantum was also erroneous.
If the press have got hold of it, then it must be publicly available - leaking legal docs that should remain sealed is presumably some kind of contempt of court otherwise!
I wonder if Investor Relations might enlighten us?
Yes I remember that email from Investor Relations saying that the majority of the fall was to do with PIs.
It was within 24 hours of K2 taking a big old dump on Cineworld just before the judgement came out!
IIRC AMC was over 100% shorted at one point, compared with our single digit short position, plus the US has a much more developed options market which turbocharged the original short squeeze with a Gamma squeeze.
@FunInvestor
Because we private investors are kept in the dark and fed on bull's excrement the setting up of a committee has been spun into something bigger than it is. It's probably just the usual PC nonsense that all big companies have to do to earn their ESG brownie points.
However, Mooky did suggest earlier on that they were looking at a US listing and it did provoke an interesting debate about the hows and the whens etc, so although it's probably a bunch of us trying to over extrapolate a tiny kernal of data, I don't think that the exercise in off itself was entirely nugatory.
BTW, if anyone is up for going through Mooky's bins, that would be great.
We could get half a dozen threads going, on what he had for dinner last night and the implications for future dividend policy no doubt!
@Bombdog
It the Canadian judgement is upheld in full and we get another variant that is worse than Delta, then yes.
However as you will see I only put that at a 10 to 20% probability.
@Bigtrader_CD2021
I come for the cameraderie, stay for the illiteracy, and the bat**** mad hopium seals the deal.
@mountainous
You are forgiven.
It isn't that simple.
Some animals are more equal than others.
In a crisis scenario, the whole capital structure will be up for grabs.
Common equity will be worth nothing, but there will be a very profitable underlying business that requires capital.
Mooky and his boys will ensure that the operating business will survive as long as they get their piece of the action, via options etc.
Google "Pre-pack Administrations" for an idea how it will play out.
Mooky's family is the largest shareholder, but be under no illusion that we rank pari-passu with him and his.
Cineworld is run for the benefit (and greater glory) of the Greindinger family, then the debt holders, then the institutions, then us small fry.
The LTIP was designed to shore up the Family's position after they had to dump a load of stock when it tanked to meet a margin call.
I have no idea why people lionise Mooky and friends - they really don't give a toss about you and have made a fist of the whole Cineplex affair.
In a company with proper corporate governance they would be sacked.
Yes, Cineworld has a very good upside, I just hope that we PI's get to share in it.
It is entirely possible that bondholders and management contrive to shaft us via some kind of debt for equity/ public to private deal that keeps Mooky and friends in the driving seat and the value destruction that occurred during Covid and the Cineplex FUBAR is visited on small investors (the bag holders in modern parlance)
I hope this post ages badly, but there is a 10% to 20% chance that I am bang on the money .
Can't see the Greidingers diluting themselves with new shares unless absolutely necessary.
BTW it's quite a big job, IIRC (last one I did was 20 years ago!) but from an accounting perspective you can't just change the accounts formats and go "Ta da!". Every single transaction or groups of transactions needs to be looked at in turn to ensure that they have been treated correctly for US GAAP & listing rules for the two preceding years and the systems need to be able to distinguish between the different treatments going forward.
No idea whether that is as hard as it used to be now we have some harmonisation with IFRS's, but given the regulatory burden it will still be a major PITA.
Maybe.
ADRs aren't a 'proper' dual listing but they would open Cine up to a wider investment pool.
The other point to consider is would this make it easier for Cineplex to enforce judgement against Cineworld if it were tradeable on a US exchange?
No idea how closely the North Americans judicial systems are integrated but it is worth considering.