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Mar 16, 2020

Cineworld dives after Cineplex activist urges rejection of deal

Activist investor urges Ottawa to block Cineplex takeover

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Cineworld Group Plc shares fell 42 per cent on concerns about the coronavirus and as its plan to buy Toronto-based cinema chain Cineplex Inc. came under fire from an activist investor.

Bluebell Capital Partners Ltd, a fund based in London that holds an undisclosed stake in Cineplex, urged the Canadian government to block the deal, according to a letter sent to Canadian officials and seen by Bloomberg News. Bluebell said the transaction would pose a “significant risk” to the future of the company.

Shares in Cineworld, the world’s second-largest cinema company, are down 88 per cent this year as it warned that in a worst-case scenario a prolonged closure of cinemas due to the coronavirus could put it at risk of breaching lending covenants. Cineworld agreed to buy Cineplex for US$2.15 billion in December, and said last week it still intends to complete the transaction.

In the letter, Bluebell said the combined group’s financial position could “quickly become extremely fragile” and it may have to close theaters, jeopardizing Cineplex’s future. Bluebell co-founder Giuseppe Bivona confirmed the contents of the letter, which was addressed to the Department of Canadian Heritage.

Cineplex’s stock had been trading close to the Cineworld offer price of C$34 per share through early 2020, but has since plunged 40% following the virus outbreak.

Separately, Fitch Ratings placed Cineworld’s B+ rating on review for downgrade on Monday, citing uncertainties about its business because of the virus impact.

An external representative for London-based Cineworld did not immediately comment.

Cineplex and the Department for Canadian Heritage did not immediately respond to emails seeking comment outside of normal business hours.