Cineworld Dives After Cineplex Activist Urges Rejection of Deal

(Bloomberg) -- Cineworld Group Plc shares fell 42% 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% 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 C$2.15 billion ($1.55 billion) in December, and said last week it still intends to complete the transaction.

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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 e-mails seeking comment outside of normal business hours.

To contact the reporters on this story: Joe Mayes in London at jmayes9@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Jennifer Ryan at jryan13@bloomberg.net, Patrick Henry

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