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?

Cineworld Cinema
Cineworld expanded too quickly
(Image credit: © Jansos / Alamy)

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.

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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”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri