PVR, Inox To Merge In An All-Stock Deal As Pandemic Drives Consolidation
PVR and Inox Leisure have agreed to merge in an all-stock deal as the pandemic drives consolidation.
PVR Ltd. and Inox Leisure Ltd. have agreed to merge in an all-stock deal as the pandemic drives consolidation in India's multiplex business even as it faces a challenge from streaming service providers.
The boards of India's two largest multiplex operators approved an an all-stock amalgamation, according to their stock exchange filings. That will create a multiplex giant with a network of 1,500 screens across 109 Indian cities.
Inox Leisure will merge with PVR and the combined entity will be called PVR Inox Ltd. Shareholders will get three shares of PVR for every 10 held in Inox. The deal is subject to regulatory and shareholder approvals.
Promoters of PVR will own 10.62% stake in the combined entity, while Inox promoters will hold 16.66%. They will be the co-promoters of the new company.
"The film exhibition sector has been one of the worst impacted sectors on account of the pandemic and creating scale to achieve efficiencies is critical for the long term survival of the business and fight the onslaught of digital OTT platforms," said Ajay Bijli, chairman and managing director of PVR.
Bijli will become the managing director of PVR Inox. Sanjeev Kumar, joint MD at PVR, would be appointed the executive director.
Pavan Kumar Jain, chairman of Inox Group, would become the non-executive chairman of the board. Siddharth Jain would be named the non-executive non-independent.
The board will be reconstituted with a total strength of 10 members and both the promoters groups will have an equal representation on the board.
EY is the exclusive financial adviser to the transaction.
Regulatory Test Case
The deal marks the merger of two businesses that dominate India's multiplex segment.
Inox operates 675 screens across 160 properties in 72 cities and PVR operates 871 screens across 181 properties in 73 cities. While Inox has a stronger presence in the east, PVR has more screens in the north, west and south.
The merged company will become much bigger than the third-largest player Cinepolis which has 417 screens. The combined entity will have three times more, if the deal fructifies.
Technically, the merger does not require the Competition Commission of India's approval as it is below the threshold of Rs 1,000 crore. That, however, is because their revenue tumbled because of the pandemic.
"It's good test case to see whether they (regulator's) go by just extreme numbers in a Covid-impacted year or [the] real dominance of the top two players who account for bulk of the multiplex industry," said Abneesh Roy, executive director-institutional equities at Edelweiss Securities.
Who Gains
According to Karan Taurani, senior vice-president at Elara Capital, the merger will improve yields on advertising, bringing INOX on a par with PVR. The combined entity may command a even better premium over the medium term, he said. Inox's advertising revenue per screen was at a 33% discount to that of PVR's in FY20.
Inox also derives 50% lower convenience fee per screen. That, too, will rise, he said. Elara Capital estimates synergy benefits of Rs 150 crore on Ebitda—about Rs 90 crore on advertising and Rs 60 crore on convenience fee.
The new entity, according to the joint statement, will also focus on strengthening its presence in tier-2 and 3 markets. "The combined entity will have much higher bargaining power in terms of rentals, content cost, marketing spends, food and beverages sourcing and savings in many cost items," said Roy.
Siddharth Jain, director at Inox Leisure, said in the statement that the partnership would bring in enhanced productivity through scale, a deeper reach in newer markets and numerous cost-optimisation opportunities as "we head into the industry’s revival amid headwinds".