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It seems you don’t need a blockbuster movie if you want drama, where Cineworld Group (CINE) is involved.

The UK cinema chain saw its shares plunge by more than a third on news that it had been ordered to pay almost $1 billion for pulling out of a deal to buy its Canadian rival Cineplex.

That wasn’t what it needed after racking up net debt of $7.68 billion pre-pandemic because of the attempted Cineplex deal and its $3.6 billion reverse takeover of US group Regal cinemas in 2017.

However, the plot twists keep on coming and the latest is that it’s now thought likely that Cineworld will avoid bankruptcy - for the second time in as many years - because those in the know reckon Cineworld and Cineplex will come to an agreement between themselves for lesser damages; meaning Cineplex gets compensated and Cineworld lives to fight another day.

And if it does, it reckons Cineworld itself seems pretty confident that it should be able to recoup some of the pandemic losses it suffered in double-quick time. Cineworld, which operates in 10 countries, has said that on the back of the release of Spider Man: No Way Home, which became the first film to gross more than $1.5 billion at the box office since the start of the pandemic, revenues had reached 88% of 2019 levels across its 751 cinemas in December.

Cineworld badly needs to pull something dramatic out of the bag. Analysts at brokerage Peel Hunt estimate that the damages awarded to Cineplex were “in excess of Cineworld’s available resources” hence the bankruptcy fears.

And as I mentioned, this is not the first time they have threatened the group. Cineworld came close to bankruptcy in November 2020 because of the pandemic, but escaped, having managed to secure about $750 million in emergency funding.

According to its latest results, Cineworld had $436.5 million in cash and a $200 million term loan at the end of June last year.

There is no doubt that the pandemic has been a difficult time for cinemas, prompting extended closures and sharply accelerating a huge shift to at-home streaming platforms.

But Cineworld is not out of the woods. The fear now is that in the face of rising living costs, any reluctancy to spend on the part of cinema-goers will hit Cineworld hard. As could the delayed release of blockbuster films. This is a company on a knife-edge and time will tell whether Cineworld gets its happy ending or not.

Shareholders have faced a rough ride over the past two years. Perhaps Thursday’s full-year results will give them a better indication of whether the Cineworld horror story has really come to an end.

More on Cineworld Group

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