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Cineplex’s COVID-19 pandemic response was similar to prospective buyer, other retailers: CEO

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TORONTO — The chief executive of Cineplex Inc. says his company’s decision to slow payments to film studios and seek rent deferrals and abatements during the pandemic was akin to moves being made by Cineworld Group PLC and other large Canadian retailers.

Ellis Jacob told the Ontario Superior Court of Justice on Thursday that after the arrival of COVID-19, it was common for global theatre operators and other businesses to try to preserve cash in these ways as people avoided non-essential gatherings.

“They were looking for relief just like we were,” Jacob said.

Cineplex’s response to the pandemic has been a key issue as the Toronto-based theatre chain faces off in court against Cineworld, a U.K. cinema company that announced it would purchase Cineplex for $2.8 billion in December 2019.

Read more: Cineplex accuses Cineworld of bad faith in day one of hearings over abortive takeover

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Cineworld backed out of the deal in June 2020, arguing it had the right to terminate the agreement without payment because Cineplex strayed from “ordinary course.”

Cineplex is seeking more than $2.18 billion in damages from Cineworld, which filed a counter claim valued at about $54.8-million.

Cineworld claims it was out of the ordinary for Cineplex to defer its accounts payable by at least 60 days, reduce spending to the “bare minimum” and stop paying landlords, movie studios, film distributors and suppliers at the pandemic’s start.

But in response to questioning from Cineplex’s lawyer Alan Mark on Thursday, Jacob indicated the payment decisions were consistent with the theatre industry’s normal course and not impacting his company’s relationships.

Studios and his cinema chain would often help each other through pre-pandemic box office swings and other business periods by allowing for later payments, Jacob said.

He was even told by studios that fellow chains were seeking similar relief.

“None of the studios withheld product and in fact, they were very supportive of getting product on the screens when were open,” Jacob said.

Chris Aranson of Paramount Pictures testified Monday that his company has an “excellent” relationship with Cineplex and the pandemic had not impacted his company’s view of the Canadian company.

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During testimony on Wednesday, RioCan REIT CEO Ed Sonshine said his company’s relationship with Cineplex was just as good during the pandemic, despite the two companies trying to negotiate deals around several properties.

READ MORE: Cineplex reports $103.7M loss despite rise in revenue as theatres reopened in Q2

Throughout the pandemic, the firms were discussing downsizing and rebuilding the Colossus theatre in Vaughan, Ont. and a future development RioCan wanted to pursue on a parcel of land attached to Cineplex’s Queensway Theatre in Etobicoke, Ont.

They were also dealing with Cineplex’s decision not to pay rent as it awaited more details of government programs.

Jacob said such decisions around rent were common at the time and that Cineworld chief executive Moshe “Mooky” Greidinger was considering making similar moves at his theatres.

For example, Jacob said Greidinger told him Cineworld was looking to make deals with landlords and the government in Poland.

“He said that they were in the same position (as Cineplex) and were discussing on the leases, payments, deferrals and abatements, where possible,” Jacob recalled of his conversations with Greidinger.

Other Canadian companies were also looking for similar relief, Jacob added.

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Emails shown in court reveal that Jacob, Heather Reisman from Indigo Books & Music Inc., Sonshine and other executives at Recipe Unlimited, the Retail Council of Canada and Cadillac Fairview were in contact with federal government workers and advisers to pitch a rent relief program.

The coalition wanted low or no interest loans and landlords to be forced to abate one third of rent for the 10-month loan period in exchange for retailers being asked to pay two thirds of their rent.

READ MORE: Cineplex unveils subscription CineClub, offering free movies, perks and discounts

The coalition was also hoping the government would agree to a five-year repayment plan with 10 per cent of owed rent due in the first year of normalized revenues, 15 per cent in the second, 20 per cent in the third and 25 per cent in the fourth.

While the government ultimately launched different relief programs, Cineplex continued to operate through the pandemic and offered food delivery and screenings in provinces where theatres were permitted to stay open.

By then, the Cineplex-Cineworld agreement had received several approvals and a closing date was nearing when Jacob said a June 2020 letter arrived from Cineworld’s lawyers alleging that Cineplex had breached the deal.

Up to that point, Jacob said Cineworld and Greidinger had never mentioned they felt Cineplex had constituted a breach of its obligations.

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Jacob said, “I had a conversation with him a few hours prior to (the letter arriving and he never mentioned anything to me.”

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