PVR to buy majority stake in Cinemax
Nov 30, 2012 (Menafn - Mint - McClatchy-Tribune Information Services via COMTEX) --NEW DELHI/MUMBAI -- Film exhibitor PVR Ltd said on Thursday that it had entered into a "definitive agreement" with Cinemax India Ltd to acquire a 69.27% stake in the theatre chain run by the Kanakia Group in an all-cash deal worth Rs.395 crore.
PVR subsidiary Cine Hospitality Pvt. Ltd (CHPL) will acquire the stake owned by Cinemax's promoter group at a price of Rs.203.65 per share.
The acquisition will be followed by an open offer to public shareholders for an additional 26% stake, in line with India's takeover regulations.
PVR also announced a preferential issue of 1,06,25,205 shares at a price of Rs.245 apiece, amounting to Rs.260 crore, to its promoters -- existing investor L Capital and new private equity investor Multiples Alternate Asset Management (Multiples) -- to partly fund the acquisition.
"We have raised Rs.260 crore through equity and Rs.280 crore through debt to fund this deal," said Nitin Sood, chief financial officer, PVR Ltd.
On the debt side, PVR has raised money from Indostar Capital Finance Pvt. Ltd, L&T Finance Pvt. Ltd and GE Capital, he said.
Under the preferential issue of equity shares in PVR, Multiples will invest around Rs.153 crore, L Capital around Rs.82.3 crore and promoters about Rs.25crore. Both Multiples and L Capital will own about 15.8% each of the company and the promoters 32%.
The acquisition makes PVR the leader in the movie exhibition business, giving it 351 screens across 85 locations with a total capacity of 84,190 seats.
It will also become the No.1 exhibitor in 10 key markets across the country.
The acquisiton gives PVR, which has traditionally been strong in the north Indian movie market, a significant presence in the western region.
PVR is working on expanding to 400 screens by the end of the fiscal year and plans to enter new markets such as Nasik in Maharashtra and Siliguri in West Bengal, and Chattisgarh.
"This is an important transaction for us as it takes us to the market leadership position..," said Ajay Bijli, promoter of PVR.
"India is a disparate market, where we have consumers for every price point. We believe there is space for both Cinemax and PVR to grow."
"This transaction...would create significant value for all the shareholders of Cinemax," said Rasesh Kanakia, promoter of Cinemax. "The deal will enable us to ensure greater focus on our real estate and hospitality businesses."
Industry experts say the deal valuation is steep.
"It is an eternal debate about valuation... but this is usually what the valuations are when a strategic buy-out takes place. The important thing to note is that with this acquisition, there now remain two growing, prominent multiplex chain owners -- PVR and Inox," said Nikhil Vora, managing director of IDFC Securities. The transaction marks another milestone towards consolidation in the theatre business.
In 2010, Inox Leisure Ltd acquired Fame India from its promoter Shravan Shroff, becoming the leader in the sector. Combined, PVR-Cinemax overtake Inox, which has around 256 screens.
Anil Ambani's Big Cinemas owns 254 screens, followed by Fun Republic, which operates 79 screens, and Cinepolis India Pvt. Ltd that has around 44 screens.
A paucity of new screens, increased box-office collections, and rising consumer spending on food and beverages at movie theatres, and the "substantial bargaining position that PVR shall have with distributors and producers" make the deal "a great strategic move by PVR." Shroff said.
Stock of PVR rose 7.83% to close at Rs.255.45 on Thursday.
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