Canadian movie theater chain Cineplex Inc. approached lenders to its bankrupt rival Cineworld Group PLC about reviving a potential merger with the U.K. company's Regal Entertainment Group franchise, according to people familiar with the matter.
Cineplex has started early talks with Cineworld's lenders about taking over the company's U.S. based Regal movie theater chain and handing them debt and stock backed by the merged business in return, these people said.
Cineplex would need to have broad-based lender backing for the merger, and Cineworld hasn't signaled support for merging its crown-jewel Regal chain with Cineplex in a bankruptcy deal, these people said. Cineworld doesn't have a clear path out of Chapter 11 yet, but it has the right to make its own restructuring offer to creditors before other alternatives can be proposed.
Cineworld, which bought Regal for around $4 billion in debt in 2017 and around $2.3 billion in stock in 2017, filed for bankruptcy with $5 billion in debt. Its lenders are keeping it afloat through the chapter 11 process and have a significant say in the company's postbankruptcy future.
A tie-up between Cineplex and Cineworld has been in the offing before, but on starkly different terms. Cineworld agreed to acquire Cineplex in 2019 for around $3 billion until the spread of Covid 19 led Cineworld, the world's second-largest cinema operator behind AMC Entertainment Holdings Inc. to walk away from the deal.
The new merger structure, advised by Moelis Co., is looking to build support for Cineplex, according to people familiar with the matter. A majority of the top lenders of the company will need to approve a business plan before Cineworld can exit bankruptcy.
If enough lenders join together, they could influence whether or not they take control of the company, or pursue a merger or sale instead.
Cineworld walked away from its previous deal to merge the two companies, citing a material change in business for Cineplex due to the choices made by its management in handling the Pandemic.
Cineplex sued Canadian commercial court in December for abandoning the transaction and winning a damages award of 1.29 billion Canadian dollars, equivalent to about $1 billion, based on the cost savings that were expected to be expected from the combined business.
Cineworld's prospects have worsened since then as the global rebound in movie- theater attendance has fallen short of expectations, pushing the company to file for chapter 11 protection earlier this month.
People familiar with the matter said that companies held talks this year about merging operations while settling the legal judgment but didn't reach an agreement. Cineworld denied liability to Cineplex and hasn't paid the judgment, which ranks below the company's secured debt in bankruptcy proceedings.
Creditors have floated Cineworld hundreds of millions of dollars to stay afloat during the epidemic, and they are likely to take control of the company when it comes out of bankruptcy unless they back a separate plan.
Lenders have advocated for merging out of bankruptcy before. American Airlines which filed for bankruptcy in 2011 merged with US Airways in 2013 after creditors pushed for a restructuring plan that included combining the two airlines.
Cineworld filed for bankruptcy after a sluggish recovery in theater admissions. Box office admissions fell by a third this summer compared to their pre-emptive trends and studio chiefs are indicating they want to emphasize theatrical releases now that audiences are leaving the house, according to industry analysts.