Curtain falls as Cineworld files for bankruptcy

Cinema chain Cineworld is filing for bankruptcy in the US, and shareholders are likely to be wiped out. How did it come to this?

The show is over. Last week Cineworld Group’s shares plunged by 80% on rumours that it was about to declare bankruptcy. This week it confirmed that it is considering a voluntary Chapter 11 filing in the US as it attempts to reduce its $5bn debt mountain, say Luca Casiraghi and Thomas Seal on Bloomberg. In theory, the move will allow the world’s second-largest cinema chain to keep operating while it works out a plan to repay creditors.

However, in practice shareholders are almost certain to be either completely wiped out, or at least heavily diluted, in any agreement.

Cineworld’s decision to file for bankruptcy comes as the industry has been “battered” by the pandemic, which closed cinemas for long periods in 2020 and the first half of 2021, say Madeleine Speed and Oliver Barnes in the Financial Times. This collapse in sales made the debt pile all the more onerous. The company has already nearly gone bankrupt twice over the past two years, with the share price falling from 180p before Covid-19 to just 4p today.

Going upmarket has backfired

The industry is still suffering from revenue lost during lockdowns, says Robbie Collin in The Daily Telegraph. Hollywood has also “resoundingly failed to furnish cinemas with enough fresh material to bring trade bouncing back”. The supply of summer blockbusters is “between a half and a third of the typical pre-pandemic crop”. However, while rivals such as Vue have had some success with “dramatic” cuts to ticket prices to lure consumers back in, Cineworld has gone in the opposite direction, charging customers more for “premium experiences” – a strategy that seems to have backfired.

Cineworld has complained about “dampened cinema attendances” caused by a “weaker slate of films”, says Sabah Meddings in The Sunday Times. But this appears to be a “diversion tactic” to hide the consequences of its “aggressive overexpansion”. It bought US giant Regal for $3.6bn in 2018 and then spent another $2.1bn on Canadian chain Cineplex just weeks before the first lockdown. Despite CEO Mooky Greidinger boasting at the time that the latter deal would create “compelling value for shareholders”, he later tried unsuccessfully to renege on the agreement, only to lose the subsequent court cases.

Like the other Cineworld shareholders, Greidinger and his brother are sure to see their 20% stake become“near-worthless” in any restructuring, says Nils Pratley in Guardian. But there is a lingering fear that we may not have seen the last of them, as there may still be “a temptation to see the family as vital to a post-restructuring corporate sequel”. If so, this should be resisted as the duo’s “debt-fuelled stewardship of Cineworld” has been a “calamity”. This is an “uncomplicated chain of cinemas that doesn’t need the old cast at the helm”.

Recommended

How to keep your dividends safe from the taxman
Personal finance

How to keep your dividends safe from the taxman

We look at ways to keep your dividends safe ahead of the decrease in tax allowances.
28 Mar 2023
Shoppers feel the pain as food inflation hits a record
Personal finance

Shoppers feel the pain as food inflation hits a record

Data from the analytics group Kantar showed food inflation hit a fresh peak in March 2023
28 Mar 2023
11 investment trusts for inflationary times
Investments

11 investment trusts for inflationary times

Inflation eats away at the value of your money, but these investment trusts can help you grow your wealth.
28 Mar 2023
Best junior stocks and shares ISA platforms
Isas

Best junior stocks and shares ISA platforms

A junior stocks and shares ISA is a great way to save for your child tax-efficiently. But it can be confusing deciding which investment platform to ch…
28 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Government plans could see NS&I boost interest rates
Savings

Government plans could see NS&I boost interest rates

The government-backed bank has a new funding target, which could prompt it to boost the rates on its Premium Bonds, ISAs and bonds.
16 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023