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Jul 6, 2020

'Case of buyer's remorse': Cineplex launches lawsuit against Cineworld

Cineplex, Cineworld vow to take legal actions against each other

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Cineplex Inc. has formally launched a lawsuit against Cineworld Group Plc as a result of the U.K.-based theatre operator's decision to pull the plug on its acquisition of Canada's largest industry player.

Toronto-based Cineplex confirmed in a release late Friday afternoon that it's seeking damages and compensation, including the $2.18 billion that Cineworld was expected to pay to close the deal, minus the value of securities still owned by investors.

It represents a souring of what was supposed to be a friendly takeover arrangement. Cineworld announced on June 12 that it was abandoning the deal, citing alleged breaches of Cineplex's contractual obligations and a material adverse effect amid the COVID-19 pandemic. Cineplex, in turn, said it was protected by a clause in the agreement that covers "outbreaks of illness or other acts of God".

In its 25-page statement of claim filed with the Ontario Superior Court of Justice Friday, Cineplex claims it fulfilled all of its obligations and that the failure to complete the deal was "a case of buyer's remorse." It goes on to allege that Cineworld "deliberately failed to fulfill its contractual obligations", including by prolonging the government's review of the transaction under the Investment Canada Act.

"Cineworld's delays were also designed to allow COVID-19 to increasingly adversely affect Cineplex's business, so that Cineworld could then (incorrectly) allege that Cineplex had breached its contractual obligations," according to Cineplex.

None of the claims have been proven or tested in court.

Cineworld acknowledged the lawsuit in a release Monday morning, while stating it didn’t breach any of the deal’s terms and that it will “vigorously defend” itself. It also said it intends to countersue Cineplex for damages and losses stemming from the failed deal.