Judge in Cineplex case cited inconsistencies in testimonies, documents from Cineworld operators

TORONTO –

The Ontario judge, who ruled in favor of Cineplex Inc. in a lawsuit against former petitioner Cineworld Group PLC discovered testimony from UK theater giants executives contradicted their text messages and other internal documents .

Judge Barbara Conway said in a decision that Cineworld CEO Mooky Greidinger, brother Israel Greidinger and chief financial officer Nisan Cohen testified that they had intended to close the $2.18 billion Cineplex deal. la until they accused Cineplex of alleged violations last summer.

However, Conway said its communications “paint a very different picture” of the executives, who are considering canceling the deal as early as mid-March and into the third week of the month. Tu has no intention of continuing to pay $34 per share.

“By March, pressure was on Cineworld to review the transaction. Its share price was falling,” Conway wrote in a judgment filed Tuesday.

“Investors have sent panic emails to Cineworld executives, urging Cineworld to reconsider and abandon the Cineplex deal.”

For example, Steven Levey of ION Asset Management, one of Cineworld’s largest shareholders, asked Cohen on March 2 if his company was thinking about leaving the deal or at least renegotiating it.

“Given the position of the market, there is clearly a case for a much lower bid,” Levey writes.

“You won’t have to pay that price today. NO WAY.”

“We understand and analyze all the options, step by step,” Coehn replied.

Cohen testified that Cineworld was not considering its options, but was trying to appease Levey. Conway disagrees.

Furthermore, she found that Cineworld had long considered walking away from the deal because it was facing liquidity concerns and was having trouble increasing its revolving line of credit by $110 million.

Israel Greidinger testified that many potential lenders to the facility were unwilling to increase their exposure to Cineworld during the pandemic and some, including Citizen Bank, continued to confirm that the deal would not conducted.

Cohen told the lenders he would explain the situation over the phone, but not in writing.

“Considering all the evidence, I cannot accept Messrs. Greidinger and Cohen’s testimony that Cineworld still intends to close the trade at $34 per share for the duration involved,” Conway said.

The executives ended up in court after Cineworld dropped its plans to take over Cineplex in June 2020, accusing Cineplex of being liable for “material adverse effects.”

Cineplex called this a case of “buyer’s remorse” and sued for more than $2.18 billion in damages. Cineworld filed a lawsuit worth about $54.8 million.

Conway found Cineplex not guilty of the alleged violations and awarded the company $1.24 billion in damages, although Cineworld has since announced it will appeal the decision.

Following Conway’s decision, Cineplex’s share price closed up 11.6% to $13.14 in Toronto, while Cineworld fell nearly 40% to 27.50 pounds on the London Stock Exchange.

Cineworld feels free to waive the deal as it claims Cineplex has strayed from “normal process”, deferring its payments for at least 60 days, reducing spending to a “ceiling minimum”. ” and stopped paying landlords, studios, distributors and film suppliers at the start of the pandemic.

“The usual course” is a legal term that frequently pops up in acquisition agreements because it helps companies terminate contracts and limit their risk, should other parties make drastic moves. affect their activities.

Cineplex argues that it follows a “normal process” for the industry during the pandemic. Cineplex said late payments to landlords, film distributors and suppliers are the industry standard during COVID-19 and that delays have not impeded relationships with studio operators and real estate developers. estate, Cineplex said.

It also indicates that the agreement contains a provision that exempts disease outbreaks or changes affecting the motion picture theater industry from being considered “materially adverse.”

Conway agrees and says that Cineplex cannot be seen as defying its usual course commitments because government-issued pandemic mandates have impeded its normal operations.

The economics of the deal have not changed because of the postponement and spending cuts, but because of the pandemic, she wrote.

“Because of the pandemic, Cineplex is no longer the attractive deal for Cineworld at $34 per share as it used to be,” she said.

“However, that is the systemic risk that Cineworld assumed when it agreed to exclude the pandemic from its definition of Harmful Effects of Corporate Matter.”

This Canadian Press report was first published on December 15, 2021.

Companies in this story: (TSX: CGX)