The Globe and Mail reports in its Friday, March 6, edition that Cineplex, was hit by a series of tweets on Thursday from a short-seller arguing that the deal with Cineworld could either fall apart or be repriced because of the market turbulence.
The Globe's David Berman writes that short-seller Hindenburg Research said in one of its tweets: "The market is indicating about a 90-per-cent chance of the deal going through, which we think is horrendously mispriced. We estimate the odds at 50-60 per cent, with the market significantly underestimating the desperation with which we think Cineworld will seek to break or modify the deal."
Short-sellers profit when share prices fall, and Hindenburg sees the potential for a big gain here. If the all-cash deal between Cineplex and Cineworld fell apart, the short-seller expects Cineplex's share price could fall significantly more, to $15.
Cineworld says it is not "commenting on any market speculation." Theatre stocks were struggling long before the appearance of COVID-19, owing largely to competitive threats from on-line streaming services. These threats underscored the deal with Cineworld, which believed that a larger global footprint would help it cut costs.
© 2020 Canjex Publishing Ltd. All rights reserved.