Lights, Camera, Action - Cineplex – a turnaround story
WE INVESTED IN CINEPLEX BECAUSE WE BELIEVE THE COMPANY HAS THE POTENTIAL TO RETURN 200+% OVER THE NEXT 16 MONTHS
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Bloomberg News Story
Activist Windward Urges Cineplex to Sell Assets, Do Buybacks (1)
By Paula Sambo and Liana Baker
(Bloomberg) -- One of the largest shareholders of Cineplex Inc. is pressing the Canadian theater chain to initiate measures to buy back shares, sell non-core assets and prepare for an outright sale, arguing the stock could nearly triple.
In a letter reviewed by Bloomberg News, Windward Management LP urged Cineplex’s board and management team to act with urgency, contending the company’s shares are deeply undervalued despite an improving industry backdrop and strong operational recovery.
“The movie theater business isn’t dying — it’s on the verge of a major resurgence, and Cineplex is perfectly positioned to ride that wave,” Windward founder and Chief Investment Officer Marc Chalfin said. “With the stock deeply discounted, now is the time to go on offense: a bold share buyback, paired with strategic divestitures, would unlock significant shareholder value and show that leadership is ready to seize the moment.”
A spokesperson for Cineplex didn’t immediately respond to a request for comment on the letter.
Shares of Cineplex jumped as much as 7.4% to C$11.51 in Toronto, the most intra day since June. The company has a market value of about C$720 million ($521 million).
Windward said it believes the stock has a potential upside of almost 200% to more than C$30 a piece by the end of 2026, adding that it owns about 7% of the outstanding shares.
Turning Point
Windward’s campaign comes as North American box offices show early signs of a sustained comeback, following years of pandemic disruption, industry strikes and a limited supply of new releases.
Attendance at Cineplex theaters in the second quarter increased to 11.6 million, a 32.7% jump over the previous year. Box office sales jumped 38.4% to C$158.5 million, driven by strong ticket sales for popular titles such as Inside Out 2, A Minecraft Movie and Lilo & Stitch.
Cineplex’s balance sheet has strengthened significantly, giving the company ample flexibility to pursue shareholder-friendly actions, Windward said in the letter. Leverage is declining: By early next year, net debt may be around three times earnings before interest, taxes, depreciation, amortization and lease expenses,excluding convertible debt, according to the firm. Meanwhile, free cash flow is improving.
The company could buy back around 55% of its current stock value and still keep its debt at a healthy level,Windward said. The money manager said Cineplex should also consider selling its non-core digital media segment and Scene+ loyalty program, which could bring in more than C$220 million and enable it to pursue a tender offer.
The Toronto-based company already sold a stake in Scene+ during the pandemic for C$60 million and unloaded its Player One amusement business for C$155 million in 2023.
Track Record
Windward calls itself a fundamental, catalyst-driven hedge fund focused on small- and mid-cap equities. Its activist campaigns have included interventions at Netgear Inc. and Groupon Inc., where Windward publicly pushed for buybacks and strategic sales. The firm said it has returned more than 113% net of fees since inception, compared with a 37% gain for the S&P 500 Total Return over the same period.
The activist pressure comes as Ellis Jacob, Cineplex’s long-serving chief executive officer, prepares to retire at the end of 2026. No formal succession plan has been disclosed. This transition could make a sale of the company “highly likely,” Windward said.
Cineplex was previously the target of a C$2.8 billion takeover by Cineworld Group Plc in 2019, a deal that collapsed when the pandemic shuttered theaters globally. Since then, Cineplex’s stock has never traded close to the C$34 per share that Cineworld had offered.
Free cash flow for US movie theater chains is expected to improve meaningfully in 2026, driven by a stronger film slate that boosts both attendance and profitability, Bloomberg Intelligence analysts Kevin Near and Geetha Ranganathan said in a report. Given the industry’s high fixed costs, including rent and labor, revenue growth is essential to expanding margins, they said.
“Highly levered exhibitors are less appealing, yet expectations of lower interest rates could put more assets in play,” they wrote. “Valuations have improved since the fallout from the 2023 Hollywood strikes but remain below pre-pandemic levels, suggesting deal activity could rise in the near term.”
To contact the reporters on this story:
Paula Sambo in Toronto at psambo@bloomberg.net;
Liana Baker in New York at lbaker75@bloomberg.net
To contact the editors responsible for this story:
Derek Decloet at ddecloet@bloomberg.net