Cineplex Inc. has prevailed in the legal fight with Cineworld Group Plc over the British theatre giant’s aborted takeover of Canada’s largest movie operator.

In a release late Tuesday, Cineplex said the Ontario Superior Court of Justice had ruled in its favour in the suit, with the court saying the U.K. firm wrongfully “repudiated” its transaction to buy Cineplex, awarding damages of $1.24 billion and $5.5 million in lost transaction costs. 

The award is a little more than half the $2.18 billion Cineplex was seeking in damages over the abandonment of the deal.

"We are pleased that the court found Cineplex acted properly throughout this difficult period in our history," said Cineplex President and CEO Ellis Jacob in the release.

Cineworld’s counterclaim in opposition to Cineplex’s legal challenge was also dismissed. In a release Tuesday, Cineworld said it disagrees with the decision and will launch an appeal. The company does not expect damages will be payable while the appeal is ongoing. Its shares sank as much as 40 per cent in trading Wednesday, and some analysts are wondering whether Cineworld will be able to cover the cost of the judgment.

“Now, the question is enforceability. Cineworld still has sizable leverage in its balance sheet,” said Canaccord Genuity Analyst Aravinda Galappatthige, who upgraded Cineplex to speculative buy and raised his price target to $19 per share from $15, in a report to clients. 

“We believe that if Cineworld does not honour the court-awarded damages, Cineplex may then have to seek enforcement in the U.K. courts, which in turn opens up a series of new questions and uncertainties.”

Cineworld originally reached an agreement to buy Cineplex for $34 per share in December 2019, at a premium of about 42 per cent. That deal came on the eve of the pandemic, which triggered sweeping entertainment restrictions that cratered revenue for theatre operators.

The British firm backed out of the deal in June 2020, alleging Cineplex breached the terms of the agreement when it deferred accounts payable by at least 60 days and cut spending to the bone in response to a precipitous drop in business activity.

Cineplex claimed before the courts that Cineworld was experiencing a case of “buyer’s remorse” in abandoning the takeover.

The deal had gained shareholder approval from both companies and was originally expected to close by the end of June 2020.

With files from BNN Bloomberg Managing Editor Noah Zivitz