PE-backed PVR picking 69.3% in Cinemax for $71M, to become top multiplex operator

PVR Ltd, the third largest multiplex chain operator in the country, has struck a deal to acquire the entire 69.27 per cent stake held by the promoters of Cinemax India Ltd for Rs 395 crore ($71 million). The deal will make PVR the largest multiplex chain operator in the country, pipping Inox-Fame combine and Big Cinemas.

Private equity firm Multiples Alternate Asset Management and existing investor L Capital are together putting in Rs 235 crore to part fund the acquisition. L Capital will pick fresh equity shares at 22.5 per cent premium to the price at which it subscribed to its shares in the previous round (more details of the PE funding here). PVR promoters are also putting in fresh cash into the firm to support the deal.

VCCircle had first reported on Nov 20 that PVR was close to sealing the deal.

PE-backed PVR is paying Rs 203.65 a share to the Kanakia family, promoters of Cinemax India, for a total consideration of Rs 394.9 crore. The deal is being routed through Cine Hospitality Pvt Ltd, a wholly owned subsidiary of PVR.

The deal has also triggered a mandatory open offer for up to 26 per cent stake in Cinemax India. If the open offer is fully successful, it may lead to the delisting of Cinemax. PVR may have to shell out as much as Rs 148 crore more to buy shares in the open offer.

Cinemax shares hit a new high, rising 4.99 per cent and touching the upper circuit breaker for the day at Rs 184.25. The deal price is at a 10 per cent premium to the current market price. The share price has climbed since VCCircle first reported the deal last week when it was quoting at Rs 145 a unit.

The share price has been pretty volatile since it was listed for trading last month and the stock has tripled within a month. Cinemax India was listed after it was separated from the real estate business, now housed under Cinemax Properties.

The present cost of putting up screens for PVR is pegged at Rs 2.5-3 crore per screen in the metro cities while it shrinks to around Rs 75 lakh-Rs 1 crore in smaller cities. Going by this yardstick, it would not have cost PVR more than Rs 400 crore to organically grow the business by adding some more screens.

Although the asking price for the deal was much higher at Rs 250 a share, the final deal price shows that PVR has benchmarked it to the cost of putting up a screen from scratch.

PVR Ltd’s scrip last traded at Rs 238.70 per share on the BSE, up 2.21 per cent on Tuesday.

Ajay Bijli-controlled PVR is holding an extraordinary general meeting (EGM) on Dec 6 to consider and pass a resolution to raise the borrowing limit from Rs 300 crore to Rs 1,000 crore.

In August this year, L Capital Asia announced that it had picked 10 per cent stake in PVR for Rs 57.7 crore, through a preferential issue, and would also invest Rs 50 crore in the multiplex chains subsidiary, PVR Leisure Ltd, which is involved in businesses like mall, entertainment and gaming.

PVR, which expanded from a single-screen theatre in Delhi to one of the first multiplex chains in India, had seen ICICI Venture invest in the company in 2003. It exited in 2007, making nearly 5x its investment.

ICICI Venture again bought into the company in 2008 and currently holds a minority stake in the firm as does its Thai strategic partner Major Cineplex, which picked stake in 2009.

The company, which had diversified beyond movie theatres to production and distribution business, had once again enhanced focus on its core cinema exhibition business and the latest deal could make it the biggest player in the country.

At present, PVR has 210 screens spread across 46 properties in 27 cities. Cinemax is present in 38 locations with 138 screens. The deal will make PVR the clear market leader ahead of Inox Leisure-Fame combine, which is currently a shade ahead of Big Cinemas as the largest operator of multiplex in India in terms of cinema screens.

Big Cinemas also owns movie exhibition business outside India, which otherwise makes it the largest multiplex chain based out of India.

PVR had earlier made a failed attempt to buy DT Cinemas, in a much smaller deal. Two years ago, it had proposed to acquire 26 screens operated by DLF subsidiary DT Cinemas in a Rs 60 crore stock-cum-cash deal. That deal, however, did not fructify.

Ajay Bijli, chief executive at PVR, said, “In order to achieve market leadership in Indian exhibition business, PVR has been on a rapid expansion mode, both through organic and inorganic routes. Today, with the proposed acquisition of Cinemax, we hope to create the largest movie exhibition chain in India.”

He also added that Cinemax has a premium portfolio of multiplex screens across India and has been a market leader in western India.

Commenting on the deal, Cinemax promoter Rasesh Kanakia said, “We believe that the exhibition business benefits from consolidation as large scale strengthens competitive advantage and significantly enhances operational efficiencies. The deal will enable us to ensure greater focus on our real estate and hospitality businesses.”

Axis Capital Ltd acted as the investment banker, Axis Finance acted as arrangers for acquisition finance and Amarchand & Mangaldas & Suresh A Shroff & Co. acted as the legal advisor to PVR for this transaction. Trust Investment Advisors Pvt Ltd acted as the investment banker and Wadia Ghandy & Co. acted as the legal advisor to Cinemax for this transaction.

(Edited by Sanghamitra Mandal)

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