Share Price Plunge for Cineworld After $900m Ruling

Share Price Plunge for Cineworld After $900m Ruling

Cineworld’s shares plunged last week, shortly after the world’s leading chain of cinemas was told that it would have to pay more than £900m in damages to its rival firm Cineplex.

The Ontario supreme court has stated that Cineworld breached its obligations by pulling out of a deal between the company and Cineplex back in 2019, weeks before the devastating pandemic came about.

Ever since this happened, the two cinema firms have been battling it out at court, with Cineworld even launching its own counter-claim against the company.

Cineplex Claim

The Supreme Court also awarded the firm Cineplex $5.5m in the lost transaction costs, costs that they would have made if the two had partnered up.

The pandemic has had one of the most significant impacts on the cinema sector as these firms were forced to close down all operations during the height of the pandemic to stop the spread of the virus.

Analysts have stated that Cineworld’s aggressive expansion plans have left the company with around $7.68bn of debt, which has been further increased by this damaging ruling.

The company has already come close to bankruptcy once before, in November, but was successful in receiving around $750 million in funding.

LSE Reaction

Early trading in London saw the stock price of Cineworld tumble as much as 36%, which could significantly impact the company.

Cineworld has stated that it thoroughly disagrees with the decision that has been made by the Ontario Supreme Court and that the company does not expect to pay any of these damages while appeals remain ongoing.

With shares at around 38p per piece at the time of writing, it remains to be seen whether or not Cineworld will be able to pick itself up after this damaging ruling.

Moreover, the company had stated that this quarter had been the first quarter in which it had seen a positive cash flow since the pandemic began.

With COVID levels rising with the new Omicron variant, it remains to be seen whether or not this cinema company will manage to stay afloat on these very stormy waters.