(Image via Cineplex.com.)
Cineplex Inc. (TSX: CGX) stock lost more than half of its value in a single trading day this week, following the chain’s plans to close its theatres.
In response to growing global concerns around the spread of COVID-19 and various Canadian government directives, the Cineplex closed its network of theatres and location-based entertainment venues across Canada until April 2nd, 2020.
During this time of social isolation, it is a challenge to keep business open when gatherings have been all but forbidden. In British Columbia, the provincial health office has prohibited gatherings of more than 50 people.
(Cineplex stock chart – March 2019 – March 2020.)
Now trading just over $8 a share, this is a far fall from its peak of over $33 at the beginning of the year.
There was an investor frenzy at the time, when shares had jumped 41% to $33.91 on news that it was about to be bought by Britain’s Cineworld Group Plc (LSE: CINE) for $2.8 billion (CAD).
The transaction was expected to close during the first half of 2020, but would that still go ahead given what has happened to its investment? Under the terms of acquisitions, parties could take a MAC (Material Adverse Change) clause, since in theory, a global pandemic like COVID-19 would qualify to rescind the acquisition.
The disease is evolving and so is the response to managing its spread, so while rules aren’t yet set in stone, law firms such as Paul, Weiss, Rifkind, Wharton & Garrison LLP have been getting asked about it. In a recently-posted FAQ on the matter, Paul Weiss stated that the effects of the outbreak - “Would not likely constitute a material adverse event under the typical MAE provision due to the currently unclear duration of its impact and its broader global and cross-industry reach.”
However, he also noted that this may change depending on how long the outbreak lasts and things can change day-to-day, so stay tuned. Cineplex isn’t the only stock to sustain damage from this enforced social adjustment, how has it affected your life or portfolio? Let us know in the comments below.