After a tumultuous week in the press, over 45,000 jobs worldwide lost and thousands of screens across the UK, Ireland & USA on Thursday night switched off for the foreseeable future, it’s been a story right out of Hollywood for Cineworld.
Crumbling under high debts, pressures from the COVID-19 pandemic and studios pulling big hitters from the release schedule the penultimate blow was No Time To Die moving to 2021.
CEO Mooky Greidinger made the decision to close operations for Cineworld, Picturehouse and Regal Cinemas in the USA this week.
The news, controversially leaked in the 4th October edition of the Sunday Times, in a front-page column entitled “Cinema giant Cineworld to shut after 007 fiasco.”
Evidently, staff were furious to find this out, once the front pages leaked onto social network Twitter, with The Sun highlighting “Cineworld staff furious”.
Being made to wait through a tense 24 hours until finding out any news, Cineworld finally announced to the stock market Monday morning their decision.
And put the livelihoods & careers on the line for thousands of staff, many of whom are left with no redundancy and no support. Further updates towards the end of this article about this.
What Led To This?
As much as Coronavirus and the studios’ decisions over the past few months have been an imperative factor, (losing a billion in the 6 months from the initial March UK Lockdowns).
Cineworld is also falling thanks to its own poor decision making, expanding too fast, too soon amongst the leverage of high debt on the path to becoming the second-biggest cinema operator in the world.
Cineworld began in 1995 opening the first location in Stevenage, Hertfordshire, and then soon opening another site in Wakefield a year later.
Read more: Cineworld Loses £1 Billion Due To COVID-19
In 2004 the company was taken over by the Blackstone private equity firm, and it grew to an even larger size taking over the UK arc of UGC Cinemas taking on over 391 screens.
In 2007 it floated on the stock exchange.
Further growth came in 2012 with the acquisition of the cultural Picturehouse chain, adding another 21 sites to the already extensive UK portfolio.
In 2014, the company grew internationally, taking over Cinema City International, one of the largest central & eastern cinema operators.
Second Acquisition and The Greidinger Family
Cinema City International was mostly owned by the Israeli Greidinger family, and in the summer of 2014 Mooky Greidinger joined the Cineworld board as CEO.
Under his leadership, Cinema City had seemingly gone from strength to strength, and he made no mistake in setting forth to do the same with Cineworld.
Third Acquisition Leicester Square and Empire Sites
In 2015, Cineworld made quite an investment in taking over the old Empire site in Leicester Square.
The prestigious site had long been sought after by Cineworld and has sat there since 1884.
Being the second-largest operator within the UK, but not having a site on the infamous square (where rivals Odeon and Vue stand) didn’t really fit.
Long had the company wanted the site, and finally, asked Empire Cinemas owner Thomas Anderson from the famous cinema operator Anderson family, to name his price.
In exchange for £94m Greidinger succeeded, and took on the venue, (which had only recently been installed with a state-of-the-art IMAX theatre.
They also took over sites from the independent chain in Newcastle, Basildon, Hemel Hempstead and Poole.
The acquisition ensured Cineworld could host major international movie premieres in Leicester Square.
Whilst the cinema itself doesn’t make much profit, the appeal of celebrities, media & press and hosting duties were too much to turn down.
The huge sale made tremendous sense to Empire Cinemas too, it allowed for large reinvestment for expansion, debt payment & modernisation of older sites in the family.
Fourth Acquisition and the foundations of trouble
In late 2017, a massive acquisition to put Cineworld into what the Globes called a further example of the Greidinger’s chase to become the “number one cinema chain” as Regal Cinemas joined for $3.6 billion.
The US operator added a huge 9,500 screens to the Cineworld behemoth across 10 countries and the growth didn’t stop there.
After boasting almost 10% in revenue increases in 2018, it looked to get even bigger.
In late 2019, the chain formally announced plans to take over Cineplex Entertainment, the largest cinema chain in Canada, by merging with Regal but make it North America’s #1 chain for $1.7 billion.
These international sales were being done with debt, and decidedly in the climate of 2020, Cineworld backed out of its Canadian plans, and Cineplex, in turn, have sued the company.
Debts Come Back To Bite
Cineworld isn’t alone with debt, The Standard reports AMC who owns Odeon are “struggling under $5.1 billion of borrowings” after it’s own acquisitions spree.
However, the real problem for Cineworld is this. It’s net debt as of September 2020 is $8.19 billion dollars.
Its asset values are only $1.19 billion. These have halved from their original values, due to Covid-19, from just 6 months ago.
Coronavirus & UK/US Lockdowns
To battle the virus spread in both countries, the UK government closed down Cinemas for 4-5 months as it struggled with the pandemic.
In America, major markets in LA/NY were also mandated to close, studios pulled releases, and the biggest market, NY still has yet to open.
In parting shots towards New York Governor Andrew Cuomo holding a lot of the blame to his door, and the governor’s “inflexibility” to reopen Cinemas.
In March Greidinger was reported in The Hollywood Reporter in the early days of the pandemic that it had “had a minimal effect” upon admissions.
But assuming the worst, a few months lockdown Cineworld said there would be “a risk of breaching the group’s financial covenants unless a waiver agreement could be reached with the majority lenders”.
Studios in Hollywood pulling all major releases has led to the decision last week to close all UK & US cinemas.
Without an end date in site for its temporary closure, and losing money fast, a decision has to be made. The option really is only to restructure their debt.
In the current climate, with Cinemas a very risky proposition for return (until the virus is over it seems) and the sheer size of its debt, Cineworld would face very high-interest rates.
If they can’t make an agreement before the end of the year, then frankly they’ll be insolvent, their banking agreements will be breached in December.
Liquidation would be most likely the final nail in the coffin that would follow.
They already took an extra secured loan in the summer to aid operations of $250 m with a high 11% interest rate, they won’t be able to loan any more realistically.
The other option, which sources state Geiringer is hugely opposed to, would be to split up the company and make some sales.
In he and his family’s quest to become the biggest chain in the world, with the current climate and the debt accrued it is most likely the only option.
A sale of one or more of the chains they own, or breaking up the huge number of sites they own and selling to other companies will help their survival.
It may even cause a group to come together and create a new chain, perhaps in the UK especially with Picturehouse and Cineworld sites potentially up for grabs.
And up for grabs at expectedly cheaper than usual prices due to the very need for liquidity and cash flow in the company.
The quick & somewhat thoughtless expansion plan of the past few years really has come back to haunt the family. And a decision needs to be made soon.
Meanwhile speaking to members of the salaried leadership teams in Cineworld, we have been updated that staff were sent an email confirming they will remain on furlough in the UK until it ends on October 31st.
But no decision has been made on after this point.
Other staff were given a slideshow presentation which suggested other roles in the meantime such as Tesco or the British Army, to the ire of many.
Some of these staff have been given a choice. Sign a contract stating they will take unpaid leave until they re-open and therefore being unable to claim for any benefits that come with losing your job through redundancy.
The other option is to take redundancy but for many on 0-hour contracts, they won’t get a penny as a result.
Odeon Makes All Salaried Staff Redundant
Elsewhere Odeon Cinemas is reported to have made all salaried staff members redundant – this includes General Managers, Deputy Managers & Costa Managers working within the cinema chain.
They are able to reapply for new roles within a “reshaped leadership team” reported the Odeon Workers Union (@OdeonUnion).
We promise to find out more news about this as it comes, but another devastating blow to the cinema workforce.
But this news certainly seems to have gone under the radar this week as Cineworld takes the headlines.
What do you make of this news?
Let us know your thoughts in the comments below.