Cineplex Wins Lawsuit Against Cineworld In Scrapped Acquisition Deal; Damages Of Nearly $1B Awarded
UPDATED: Cineplex today announced that it had prevailed in its lawsuit against Cineworld Group. The case centered on a deal in which Cineworld was to have acquired Canadian exhibitor Cineplex. The Ontario Superior Court of Justice has now ruled that Cineworld “repudiated the transaction to acquire Cineplex.” As a result, Cineplex won damages for breach of contract to the tune of $1.24 billion Canadian. That equates to about $965 million U.S. dollars.
In addition, the Canadian court denied Cineworld’s counterclaim.
“We are pleased that the Court found Cineplex acted properly throughout this difficult period in our history,” said Cineplex CEO Ellis Jacob in a statement. “With roots that go back over 100 years, we are proud of the relationships we have maintained through this process and remain steadfastly committed to our guests, shareholders and team across Canada and the United States.”
Cineworld reportedly plans to appeal.
PREVIOUSLY on July 6, 2020: Cineplex on Friday filed a suit against Cineworld Group after the latter terminated a deal to acquire the Canadian exhibitor in June. The action, at the Ontario Superior Court of Justice, seeks damages including the approximately $2.18B ($1.6B) that Cineworld would have paid upon closing the transaction, as well as compensation for “other losses,” Cineplex said in a statement. Cineworld today has said it will make a counter claim.
In December last year, Cineworld, which owns Regal in the U.S. and is the 2nd largest exhibitor in the world, announced a proposed C$2.1B purchase of Cineplex which would have made Regal the bggest cinema circuit in North America by number of screens.
Then in mid-June, after the coronavirus had shuttered cinemas for several months, Cineworld said it was backing away from the deal, claiming Cineplex had both breached the terms and experienced an unspecified “material adverse effect.” At the time, Cineworld indicated that it had approached the issues with Cineplex, but that the Toronto-based exhibitor had been “unwilling to cure the breaches,” resulting in immediate termination.
Cineplex’s action claims that Cineworld “breached its contractual obligations and its duty of good faith and honesty in contractual performance. Cineworld purports to rely upon alleged adverse impacts of COVID-19 on Cineplex’s business to terminate the arrangement, which it is not entitled to do. The contractual agreements between the parties expressly exclude outbreaks of illness, such as the COVID-19 pandemic, as a circumstance entitling Cineworld to terminate the arrangement. Without any legal right to avoid its contractual obligations, Cineworld intentionally chose to breach its obligations, including its obligation to seek timely regulatory approval for the Aarrangement under the Investment Canada Act.”
Cineplex calls Cineworld’s canceling of the deal “nothing more than a case of buyer’s remorse.”
In a statement today, Cineworld said it “is entitled to recover from Cineplex all damages and losses that it has suffered as a result of Cineplex’s breaches and the acquisition not proceeding, including its financing costs, advisory fees and other costs incurred. Cineworld intends to counter‐claim against Cineplex for these damages and losses.”
Cineworld has previously denied allegations by Cineplex that the British giant failed to comply with its obligations under the merger terms relating to pursuing the approval of deal under the Investment Canada Act. It said it has complied with all of its obligations, was entitled to terminate the deal and will “vigorously defend any allegation to the contrary.”
In today’s statement, Cineworld again denied any breaches and reiterated it will “vigorously defend this claim.”
Cineworld further added, “In any event, Cineworld believes that Cineplex’s claim, if successful, would be limited to its costs and expenses incurred in relation to the acquisition and would not be assessed by reference to the consideration that was payable under the acquisition.”
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