A Thriller of a Valuation Case

In re Appraisal of Regal Entm't Grp., 2021 Del. Ch. LEXIS 93; 2021 WL 1916364

In May 2021, a Delaware Chancery case came down on a shareholder challenge to the fair value of shares of Regal Cinema in a sale to Cineworld. The court arrived at a value based on the deal price less synergies, which actually gave the challengers less than the deal price for their shares. That in itself was groundbreaking, but another issue lurked in the background and was fully discussed in the opinion. That issue was the value of the synergies in this transaction. 

The opinion discusses the process in determining the synergies for financial statement purposes. The lenders were happy with the determination of $70 million in synergies. Cineworld went back to their “experts” in determining the synergies and increased them from $70 million to $100 million. The court did not accept the additional $30 million, nor did the seller Regal’s representatives, who said in rather explicit and colorful terms that the $100 million was not achievable.

Fast forward to now and an article in the Financial Times discussing the current state of Cineworld, that it is close to collapse, “which has been battered by lockdowns and the exodus of film fans to streaming services.” The pandemic, combined with zealous expansion that has led to an enormous load of nearly $9 billion in debt and lease liabilities. A Chapter 11 filing in the U.S. is imminent, and similar filings in other countries will follow. The CEO and founding family member Mooky Greidinger will apparently receive some stake in the new entity, but the biggest lenders will likely seize control of the business.

So is this a case of a thrilling permanent change in the movie theater business or is it the result of the pandemic and expansion, especially the Regal Cinema’s deal? Certainly, the aggressive measurement of $100 million in synergies in the Regal deal leaves a lot of questions on the table as to where the company might be today had the pandemic and change in the business never occurred. Was Regal (and perhaps other acquisitions) a bad deal? We will likely never know.