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PE-backed UFO Moviez, Qube Cinema to merge; ICICI Venture enters as new investor

02 November, 2017

UFO Moviez India Ltd and Qube Cinema Technologies Pvt. Ltd have decided to merge their businesses to strengthen their position in India’s digital cinema distribution and in-cinema advertising industry.

The transaction involves the merger of UFO and its wholly owned unit PJSA Technosoft Pvt. Ltd with Qube Cinema and its group companies Qube Digital Cinema Pvt. Ltd and Moviebuff Pvt. Ltd, UFO said in a stock-exchange filing.

In a multi-layered transaction, Qube Cinema will first demerge its business of providing technology solutions and services in the film, video and audio domains, including digital cinema advertising, into Qube Digital. This will eventually be merged with UFO after ICICI Venture and UFO buy a stake in Qube Digital from private equity investors. Qube Digital’s shares purchased by UFO will be cancelled after the merger.

Qube’s investors include Nomura, one of Asia’s top investment banks, and Intel Capital. Both who have been invested in the company for around a decade. Formally known as Real Image Media Technologies Pvt. Ltd, the three-decade-old Qube Cinema had received funding from Intel Capital, the venture capital arm of Intel Corp, in 2006.

In 2008, Qube raised $25 million in a round led by Nomura, with participation from Intel Capital.

Mumbai-listed UFO Moviez is backed by PE firm Providence Equity Partners, which held a 19% stake in the company as of September 2017. It is not clear if Providence is exiting as part of the transaction. Earlier this year, Providence had said that it was scaling back its operations in India to focus primarily on the US and Europe.

UFO didn’t disclose financial details of the deal, saying only that the merger ratio based on relative valuation stands at 63.6% for the company and 36.4% for Qube Digital.

Shares of UFO Moviez shares gained 8.3% to Rs 470.25 in the early hours of Thursday in a weak Mumbai market.

Merger rationale
UFO said that both the companies are engaged in the business of digital cinema distribution and operate in-cinema advertising platforms. A merger would lead to robust growth opportunities in India and globally, it said.

After the merger, the combined entity’s in-cinema advertising platform will have a presence across 7,300 digital screens spread across India with a seating capacity of around 95.5 million per week. While UFO owns about 4,000 advertising screens, primarily in the North Indian market, Qube has 3,300 screens focussed on South India.

“The combination will bring together capabilities, talent, strong processes of both companies,” said Sanjay Gaikwad, founder and managing director of UFO Moviez.

Senthil Kumar, co-founder of Qube Cinema, said that the combination of the proven business models of the two companies will be extremely beneficial. “UFO’s strengths combined with Qube’s strong technology focus would position the combined entity to deliver long-term growth at a faster pace,” he said.

Walker Chandiok & Co. LLP recommended the share-swap ratio for the proposed merger. Axis Capital acted as the financial adviser to UFO and provided a fairness opinion on the share-swap ratio from a financial point of view.

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PE-backed UFO Moviez, Qube Cinema to merge; ICICI Venture enters as new investor

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