UK based major exhibitor, Cineworld, has pulled out of a deal to acquire Cineplex Entertainment, the largest Canadian exhibitor with over 1,700 screens.The deal was reported to be worth $2.3 billlion. Cineworld, which also owns Regal, the largest exhibitor in the US, finalised the original deal in December 2019, before the full impact of COVID-19 was known.
The deal would have added 168 sites and 1,718 screens of Cineplex Entertainment in North America, for a total of 973 cinemas and 11,314 screens worldwide. Cineplex accounted for 75% of box office in Canada in 2019.
The original driver behind the deal seemed to be to create a global exhibition powerhouse, in which the screens from Cineplex would have cemented Cineworld as the largest exhibitor, in the largest box office market worldwide (2019). Cineworld was second-ranked globally with 9,595 screens across 15 territories (including smaller markets such as Guam through Regal) based on 2019 data.
Cineworld refers to a ‘material adverse effect,’ which led the deal to fall through. In reply, Cineplex reportedly claims it has not breached the sale agreement and denies any effect had taken place. The deal was required to complete by end of June. Cineplex has reportedly stated it intends to commence legal proceedings and seek damages.
In Canada, most cinemas had closed down due to high volume of COVID cases in mid March, but the territory is now slowly starting to re-open screens, starting with Alberta and British Columbia from 12 June. Cineplex stated it intends to start re-opening theatres in Alberta, but notes that its VIP theatres, which sell food and beverages will not be re-opening for now.
The dispute echoes a similar fall out between Star Cinema Grill in the US and CMX Cinemas (also in the US), which accused CMX Cinemas of pulling out of a deal to acquire it. The deal was first agreed in March 2020 but CMX later claimed a materially adverse effect had occurred and reneged on the deal. In April, it was reported that CMX Cinemas had filed for bankruptcy.
Aside from any legal dispute, what remains clear, is that unless the issue is resolved between the two parties, Cineplex will likely remain a target for acquisition. This renewed availability, however, comes at a time when exhibitors are primarily focused on recovery from a global pandemic and as such a larger acquisition may not be a core focus without recourse to significant investment.
There has, however, previously been discussion about a non-theatrical owner such as a streaming giant acquiring a major circuit, but this hasn’t been the primary focus of such companies to date and does not currently sit with their core strategy, which remains focused on prime content and growing subscribers. That said, becoming an owner of a major circuit would provide a strategic foothold into the cinema industry, particularly in the prime North American market, plus a platform to release key content with all the associated prestige of theatrical.
Cineworld has announced it will begin to re-open its theatres in the UK and US on July 10, following closure from late March due to COVID-19.