Cineplex seeks to revive Regal merger after Cineworld bankruptcy

Canadian movie theater chain Cineplex Inc. has approached lenders to its bankrupt rival Cineworld Group PLC about reviving a potential merger with the U.K. company’s Regal Entertainment Group franchise, according to people familiar with the matter.

Cineplex has started early talks with Cineworld’s lenders about taking over the company’s U.S.-based Regal movie theater chain and handing them debt and stock backed by the merged business in return, these people said.

Cineplex would need to garner broad-based lender backing for the merger and Cineworld hasn’t signaled support for merging its crown-jewel Regal chain with Cineplex in a bankruptcy deal, these people said. Cineworld doesn’t have a clear path out of chapter 11 yet, but it has the right to make its own restructuring offer to creditors before other alternatives can be proposed.

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Cineworld, which bought Regal for around $4 billion in debt and around $2.3 billion in stock in 2017, filed for bankruptcy with about $5 billion in debt. Its lenders are keeping it afloat through the chapter 11 process and have a significant say in the company’s postbankruptcy future.

Cineworld and Cineplex declined to comment.

A tie-up between Cineplex and Cineworld has been in the offing before, but on starkly different terms. Cineworld agreed to acquire Cineplex in 2019 for roughly $3 billion until the spread of Covid-19 led Cineworld, the world’s second-largest cinema operator behind AMC Entertainment Holdings Inc., to walk away from the deal.

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Cineplex, advised by investment bank Moelis & Co., is now looking to build support for a new merger structure, this time as the acquirer, according to people familiar with the matter. It would need support from the company’s top lenders, a majority of whom will have to approve a business plan before Cineworld can exit bankruptcy.

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If enough lenders band together, they can likely influence whether they take control of the company themselves or pursue a merger or sale instead.

Cineworld walked away from its prior deal to merge the two companies by citing a material change in business for Cineplex due to choices made by its management in handling the pandemic. 

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Cineplex sued Cineworld in a Canadian commercial court for abandoning the transaction, winning a damages award in December of 1.29 billion Canadian dollars, equivalent to about $1 billion, based in part on the cost savings that were expected from the combined business.

Cineworld’s prospects have worsened since then as the global rebound in movie-theater attendance has fallen short of expectations, pushing the company to file for chapter 11 protection earlier this month.

The companies held talks this year about merging operations while settling the legal judgment but didn’t reach an agreement, people familiar with the matter said. Cineworld has denied liability to Cineplex and hasn’t paid the judgment, which ranks below the company’s secured debt in bankruptcy proceedings.

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Creditors have floated Cineworld hundreds of millions of dollars to stay afloat during the pandemic, and they are likely to take control of most of the company when it emerges from bankruptcy, unless they choose to back a separate plan.

Lenders have advocated for mergers out of bankruptcy before. American Airlines, which filed for bankruptcy in 2011, merged with US Airways in 2013 after creditors pushed for a restructuring plan that included combining the two airlines.

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Cineworld filed for bankruptcy after a sluggish recovery in theater admissions. Although studio chiefs are indicating they want to emphasize theatrical releases now that audiences are leaving the house, box office admissions this summer were down by around one-third compared with their prepandemic trends, according to industry analysts.