Curtain falls on Cineworld’s debt-fuelled expansion

Linda J. Dodson

Cineworld alleges that its rival has breached its covenants, a reference, it is thought, to a pre-agreed ceiling of $725m (£578m) on its debts.

Cineworld has also invoked a “material adverse” clause, though Cineplex argues that the agreement “excludes any outbreaks of illness or other acts of God” from the definition, setting the stage for months of bitter wrangling.

But Cineplex seems to cut to the heart of the dispute with its claim that Cineworld is guilty of “buyer’s remorse”. It now intends to commence legal proceedings for damages.

Greidinger, in his desperation to find a way out, looks to have taken a calculated gamble that the costs from any defeat in the courts will be a tiny fraction of the deal value.

It is the sort of move you would expect from a seasoned dealmaker. Still there’s no getting away from the fact that a more cautious regime probably wouldn’t have ended up here in the first place.

Trigger-happy chief executives are fond of talking up the need for an “efficient balance sheet”. Indeed, they claim to be under huge pressure to ramp up leverage. But as veteran fund manager Richard Buxton points out, when the inevitable next downturn arrives, “it’s debt that gets you every time”.

A wider rethink about the merits of debt-fuelled expansion is needed.

Can TalkTalk walk the walk?

A cynic might say it’s always jam tomorrow at TalkTalk. Charles Dunstone’s telecoms outfit has been challenging powerful rivals such as BT and Sky for nearly two decades.

Yet it remains a perennial under-achiever producing scant returns, held back by strategic flip-flopping and a lack of genuine scale. In recent years TalkTalk has been shrinking.

The sale of its FibreNation infrastructure arm for £200m in March presented a golden opportunity to repair TalkTalk’s stretched finances. Indeed boss Tristia Harrison promised to pay down debt, so there has been some scratching of heads in the City since its annual results revealed debt levels hadn’t budged.

TalkTalk has faced questions about its fundraising efforts before. In 2018, a £200m share placing to reduce borrowings provoked the ire of investors after it breached guidelines.

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