RE: Wellington15 Dec 2021 10:38
@kick - very kind but I'm no expert and certainly not in Canadian Law!
I would think that if this judgement was upheld on appeal, it would have to be paid all in one go, with Cineworld having to refinance either through debt or equity (Rights Issue) to come up with the cash. I would guess that an appeal would take 6 to 12 months to mount given the backlog in the system, and the world could look very different then, both in trading and share price terms - on the positive side.
An alternative might be to do it in specie - after all they are in the same business and Cineplex might fancy a few US cinemas (subject to debt covenants etc)!
Having read the judgement, I doubt that Cineworld would overturn the decision that they were at fault (although you never know) but the decision on the amount payable just looks wrong, and the Judge kind of admits that she only took it because it is the least worst option.
Factors such as the additional debt that Cineplex would have been saddled with wasn't explored because Cineworld was vague and there was little evidence presented
"[179] Cineworld argued in its oral submissions that I cannot take into account the expected
synergies without also accounting for the additional debt that the combined entity would have had
after closing. Cineworld refers to the Third Amendment to Credit Agreement dated February 13,
2020 that it says would have permitted the banks to place over $2 billion of Cineworld debt at the
Cineplex level and Mr. Israel Greidinger’s evidence that Cineworld planned to do so after closing.
This evidence was vague and uncertain. It is not clear to me what the timing of these post-closing
plans were nor is there any evidence of the financial impact that this would have had on Cineplex
(such as the amount of the debt service cost that would have been borne by Cineplex as opposed
to the other Cineworld borrowers under the credit facility). The evidence is insufficient for me to
apply any discount to the amount of the lost synergies that Mr. Rosen calculated."
Plus the synergies accruing to Cineplex wouldn't have been free - if Cineplex used Cineworld US HQ and other infrastructure and BoD etc, then Cineworld would have charged Cineplex a management fees for this.
(be interesting to know what happened in the Regal takeover because if debt was secured on that entity and management fees charged, that would be great evidence of what was intended in this case)
The more I read the more I think Cineworld were in the wrong by terminating the agreement but that the damages are out by an order of magnitude.
At least the battle lines are drawn for the Appeal, something which wasn't clear on this occasion which is why Cineworld didn't present sufficient evidence in the points noted above.
Sign In
Follow the stocks
