Cineworld Shares Are Range-Bound As Potential Suitors Emerge

The Cineworld Group plc (LON: CINE) share price has been trading sideways since mid-November amid rumours that some of its competitors are interested in acquiring its assets or the entire company. 

However, the movie theatre company’s management team, led by Mooky and Israel Greidinger, have expressed confidence that the firm will emerge unscathed from the bankruptcy proceedings. Moreover, there are reasons to believe they could achieve this lofty goal. 

After filing for Chapter 11 bankruptcy protection, Cineworld was forced to allow its creditors a say in how the company will be run, something the Greidinger brothers had initially opposed. The company owes its creditors about $5 billion, with a further $4 billion in lease liabilities. 

Therefore, it makes sense that some of its secured creditors would want to recoup their investments by selling off parts of the business. However, a massive obstacle is standing in the way of potential acquisitions; other movie chains are also struggling!

Cineworld’s rumoured suitors include Canadian cinema operator, Cineplex, and the third-largest UK cinema chain, Vue International have all expressed interest in acquiring some of Cineworld’s assets. The problem is that neither of them is in a strong financial position. 

Cineplex had offered to purchase Cineworld’s American assets, the Regal Cinemas franchise, in a deal funded partly by cash and a share swap. Cineworld rejected the deal, but we cannot write it off yet, since the company’s creditors may still choose to move forward with the deal. 

Vue International’s interest in Cineworld’s assets was a welcome gesture, but many doubt whether the company has the financial muscle to fund a deal. Vue recently emerged from a £1 billion restructuring; hence, buying Cineworld’s assets may not be a good idea. 

Therefore, Cineworld might escape the much-dreaded fate of selling some of its assets to its competitors since many of them are struggling and do not have the financial capacity to acquire them. However, nothing is set in stone now, and the situation could change, forcing Cineworld to sell some of its assets. 

So, would I buy Cineworld shares? The short answer is no. The company still has to restructure its debt, and even then, it still has to rely on blockbuster movies to drive moviegoers back to its theatres. 

*This is not investment advice. 

The Cineworld share price chart.

The Cineworld share price has been trading sideways since mid-November, which seems unlikely to change.