Deal Contours
In this merger, INOX investors will receive PVR shares in exchange for INOX shares at the approved swap ratio. The share swap ratio stands at three shares of PVR for 10 shares of INOX. After the merger, PVR promoters will have a 10.62% stake, while INOX promoters will own 16.66% of the combined entity. Both promoter groups – PVR and INOX – will hold two board seats in a reconstituted 10 member board, with Ajay Bijli as the managing director and Sanjeev Kumar as executive director.
The existing properties will remain as it is, but the new screens will be branded as PVR INOX. This merger is to fight losses that the multiplexes made during the COVID-19. Around 70% of the market consists of single screen cinemas, which face a shutdown, whereas multiplexes, with a 30% share and ~2,700 screens, are seeing strong growth. Both companies saw this as an opportunity to gather healthy box office collections. The combined entity plans to deepen its expansion in tier II and III markets with this merger.
Pros And Cons
The biggest pro is that both are the most extensive multiplexes of India. The combination will augur growth and create tremendous value creation for all the stakeholders. It will offer compelling revenue and cost synergies from INOX’s lower share of non-ticketing revenue at 42% v/s 48% for PVR. This will allow it to leverage the scale of the merged entity. Meanwhile, the threat from OTT platforms like Netflix, Amazon Prime etc., will continue to hinder the cinema business. It will haunt multiplex owners’ occupancies, entire period and screen economics. Also, the cinema industry has not fully recovered yet, so we can’t say if the deal’s timing is correct.
What Lies Ahead?
OTT platforms remain the biggest threat to the multiplex business because they eat off sizable revenue. It will be hard for the multiplexes to attract viewers except for the big-budget movies. Since PVR and INOX are the most prominent multiplex players, the street is eying an opportunity in the merger. Both stocks skyrocketed a day after the announcement.
