India’s leading multiplex chain, PVR, will merge with INOX Leisure, the second biggest, to create the country’s largest film exhibition company — with 1,546 screens in 341 properties across 109 cities. The move is a surprise as PVR had reportedly been in advanced talks with the local unit of Mexican company Cinépolis for a possible merger.
Boards of the two companies approved the all-stock amalgamation of INOX with PVR on Sunday. After the merger, INOX promoters will hold a 16.66% in the merged company, while those of PVR will have 10.62%. The merger is subject to approval by regulators, shareholders and stock exchanges.
It will likely not require Competition Commission of India (CCI) approval, said some analysts, as the threshold of Rs 1,000 crore won’t be exceeded, given the damage to the sector caused by Covid-19, which closed theatres for months on end.
INOX shareholders will get three shares of PVR for every 10 they hold, according to the terms of the deal. On Friday, stocks of PVR and INOX traded at their 52-week highs.
Focus on Creating Scale
PVR closed at Rs 1,827.60, up 2.8%, for a market value of Rs 11,120 crore on the BSE. INOX ended at Rs 470.50, up 6.3%, for a market value of Rs 5,740 crore.
The combined entity will be named PVR INOX, although the current branding of existing screens will continue. New halls will be branded PVR INOX.
“This decisive partnership would bring in enhanced productivity through scale,” said INOX director Siddharth Jain.
PVR chairman and managing director Ajay Bijli said, “The film exhibition sector has been one of the worst impacted sectors on account of the pandemic. Creating scale to achieve efficiencies is critical for the long-term survival of the business and (to) fight the onslaught of digital OTT platforms.”
The deal, if completed, will reshape the country’s film exhibition industry that’s seeing its first consolidation in the past decade and a half. After the merger, the promoters of INOX will become co-promoters in the merged entity along with the existing promoters of PVR. The board of the merged company will be reconstituted with a total strength of 10. Both promoter families will have equal representation with two board seats each.
INOX’s Pavan Kumar Jain will be non-executive chairman, while PVR’s Ajay Bijli will be managing director and his brother Sanjeev Kumar Bijli will be executive director of the merged company. Jain will be non-executive, non-independent director in the combined entity.
Big Screen, Big Numbers
EY was exclusive financial advisor on the transaction. Dhruva Advisors and Khaitan & Co acted as transaction tax and legal advisors to INOX. EY Merchant Banking Services and Axis Capital provided a fairness opinion to INOX and PVR, respectively, on the share exchange ratio.
PVR currently operates 871 screens at 181 properties in 73 cities, while INOX has 675 screens at 160 properties in 72 cities. Carnival Cinemas and Cinepolis India follow with 450 and 417 screens, respectively.
“As we head into the industry’s revival amid headwinds, this decisive partnership would bring in enhanced productivity through scale, a deeper reach in newer markets and numerous cost optimisation opportunities and continue to delight cinema fans with world-class experiences and landmark innovations,” Jain said.
The two companies said the combination augurs well for the growth of the Indian cinema exhibition industry, besides ensuring value creation for all stakeholders, including customers, real estate developers, content producers, technology service providers, states and employees.
“This is a momentous occasion that brings together two companies with significantly complementary strengths,” Bijli said. “The partnership of these two brands will put consumers at the centre of its vision and deliver an unparalleled movie going experience to them.”
More Bargaining Power
Abneesh Roy, senior vice-president at Edelweiss Research, said the move is positive for the merged entity, with a significant increase in bargaining power in relation to content producers, mall owners, advertisers and consumers.
“Pricing power in tickets, food and beverages and ad rates will further increase in favour of PVR-INOX,” Roy said. “Key monitorable is, will CCI approve it? Good test case to see whether they go by just extreme numbers in a Covid-impacted year or real dominance of top two players, who account for the bulk of the multiplex industry.”
As per industry data, India has close to 9,500 screens. However, PVR and INOX would command over 50% of overall box-office revenues.
On March 6, ET had reported that PVR was in advanced talks with Cinépolis India for a possible merger, which would have made the Mexican player the largest shareholder of the merged company with around 20% stake. The combined entity would have been double the size of INOX.
It is learned that Cinépolis was also talking to INOX, reports of which prompted Jain and Bijli to explore a merger, said people with knowledge of the matter. “As the deal had to be signed during this financial year, the talks progressed very fast with meetings stretching overnight in the last couple of days,” a senior executive said.
Source: Economic Times