The Cineworld Group plc (LON: CINE) share price has risen 6.7% in January, but some might be wondering whether there could be more gains for shareholders. The short answer is that any future rally in Cineworld shares largely depends on the outcome of the Chapter 11 bankruptcy process.
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Cineworld announced earlier this month that it had launched the search process for a potential buyer for its entire business while insisting that it wanted to avoid disposing of its business in parts via an asset sale. The move to sell the entire business will likely dissuade some potential buyers.
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The movie theatre chain refuted claims that it had discussions with AMC Entertainment, the most financially able suitor, to buy its American business, which operates the Regal Cinemas movie chain. Will AMC Entertainment submit a revised offer for Cineworld, and will the company’s management and creditors accept the deal if offered?
The Greidinger brothers, who manage Cineworld, have expressed their intention to emerge from the bankruptcy process as a whole unit. Still, its creditors have a say in the outcome of the restructuring process, which is why the company decided to open the doors to potential suitors.
Given the company's massive debt pile, Cineworld is unlikely to attract interest from other players apart from fellow movie theatre operators. Any acquirer would have to inject significant funds into the company to keep it alive.
Private equity groups that live to saddle the firms they acquire with massive debt may not be interested in buying Cineworld with its $9 billion debt pile since there would be no room for them to accumulate further debts. However, there are no guarantees that a PE firm will not make an offer for Cineworld.
Investors are patiently waiting for Cineworld to announce whether there has been significant interest in the firm since opening the window for potential buyers to submit bids for the company. If there are no bids, Cineworld creditors may have to write off a massive chunk of its current debts while converting some of it into equity.
The restructuring would leave Cineworld in a much stronger financial position, which could fuel an uptrend. However, existing shareholders will be significantly diluted by the restructuring.
*This is not investment advice.
Cineworld share price.
The Cineworld share price is up 6.69% in January. Will it keep rising?
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