Cineworld Group PLC (LSE:CINE) (LSE:CINE) is heading for a legal showdown with Canadian rival Cineplex (TSX:CGX) as proceedings over last year’s aborted US$2.1bn merger are scheduled to begin on September 13 in a court in Ontario.
The deal, which was agreed in December 2019, was abandoned by Cineworld last June, with the company saying Cineplex (TSX:CGX) had committed “certain breaches” of the merger contract that it had been unwilling to resolve.
However, Cineplex hit back by saying Cineworld’s allegations had been “buyer’s remorse” due to the effects of the COVID-19 pandemic on its business, which was forced to mothball most of its theatres during lockdown.
Following Cineplex’s lawsuit, Cineworld countersued in July 2020, saying it will seek C$2.18bn (GBP1.25bn) of damages less the value of Cineplex shares retained by Cineplex shareholders.
The prospect of a hefty damages payout to Cineplex will not sit well with Cineworld’s investors or its creditors, with the group currently facing a massive debt pile of US$8.5bn, around eight times its current market cap.
An ongoing legal wrangle may also make the firm a harder sell to US investors, with Cineworld saying last week that it is mulling a listing across the Atlantic to access fresh capital.
However, despite the looming legal action, the company’s shares rose 1.3% to 63.5p in lunchtime trading on Monday.