- Company sees exit from Chapter 11
- No recovery likely for equity holders
- Shares slide almost 50% at the open
Cinema chain Cineworld (CINE), which announced last September it was filing for insolvency under the US Chapter 11 process in order to find a buyer for some or all of its assets, today revealed it had received non-binding indications of interest for parts of the business.
However, instead of rocketing on the news, the shares initially dived as much as 48% before recovering to trade 20% lower at just over 3p.
WHY HAVE CINEWORLD SHARES COLLAPSED AGAIN?
Unfortunately for shareholders, none of the proposals on the table so far include a cash bid for the business, nor does Cineworld expect a sale to provide any recovery for holders of the firm’s equity interests.
In other words, shares in the company are worthless to any potential buyer and it is highly likely the firm will be delisted once a deal is agreed, leaving anyone owning the stock with nothing.
To be fair to the company, it has repeatedly warned shareholders they faced significant dilution at best, should a buyer decide to keep the stock market listing, but the bottom line was there was ‘no guarantee of any recovery’ for holders of the shares.
Cineworld says discussions with certain stakeholders ‘suggest that there is a route to the company emerging from the Chapter 11 cases’ during the first half of this year.
Meanwhile, it continues to operate its cinemas around the world ‘as usual without interruption’, although that will be of little consolation to shareholders.
EXPERT VIEW
Cineworld has ‘paid the price for being too aggressive with its growth ambitions, weighed down by significant debt when the pandemic struck and the subsequent reopening of the cinema industry being too weak to repair its finances’, says AJ Bell investment director Russ Mould.
‘It has watched too many gambling films and played the wrong hand. Selling subsidiaries doesn’t mean it will be suddenly swimming in cash. Any interested party in Cineworld’s assets knows that the cinema group is desperate and so they are likely to pitch any offers at a low level.
‘From where we stand today, two things look almost certain - one, we won’t see a bidder for the whole business; and two, shareholders will be left with nothing. Even if the company does sell some of its subsidiaries, the end game still appears to be a debt-for-equity swap whereby creditors take control of the business.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
