Cineworld moved on June 12 to scrap its $1.6 billion acquisition of the Canadian business — a move that instantly anticipated legal action from Cineplex, which promised to sue just days later. On July 3, Cineplex filed a lawsuit against Cineworld in the Ontario Superior Court of Justice.
“Cineworld’s actions to prevent the Arrangement from closing in light of the COVID-19 pandemic is nothing
more than a case of buyer’s remorse,” a statement from Cineplex said. “While Cineplex honored all of its obligations under the Arrangement, Cineworld did not.”
Cineplex claims that Cineworld “breached its contractual obligations and its duty of good faith and honesty in contractual performance.” The Canadian chain highlights that Cineworld, which it claims to be relying upon “alleged adverse impacts of COVID-19,” is not entitled to do so because “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.”
Cineworld issued a counter statement on Monday, stating in a note to investors, “The proceedings allege that Cineworld breached its obligations under the Arrangement Agreement and/or duty of good faith and honest contractual performance and claim damages of up to C$2.18 billion ($1.6 billion) less the value of Cineplex shares retained by Cineplex shareholders. As previously announced, Cineworld did not breach these (or any) obligations or duties and will vigorously defend this claim. 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.”
Cineworld claims that Cineplex terminated the deal “because Cineplex breached a number of its covenants under the Arrangement Agreement,” the statement added.
“Cineplex did not remedy these breaches when given the opportunity to do so. Cineworld 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 is the world’s second largest cinema chain.