PVR Ltd on Sunday said it has agreed to buy a 71.7% stake in SPI Cinemas Pvt. Ltd for 633 crore—a move that will help India’s largest multiplex operator boost its presence in the lucrative south Indian market. The acquisition of SPI, the largest cinema exhibitor in south India, will make PVR the seventh largest cinema exhibitor in the world. On completion of the acquisition, PVR’s total screen count will increase to 706 across 152 properties and 60 cities. PVR had acquired Cinemax in 2013, followed by the acquisition of DT Cinemas in 2016.

SPI, which runs the iconic Sathyam Cinema in Chennai, has a network of 76 screens across 17 properties and 10 cities across Tamil Nadu, Telangana, Karnataka, Kerala, Mumbai and Andhra Pradesh. Other cinema brands operated by SPI include Palazzo, The Cinema, S2 and Escape. Moreover, SPI has a pipeline of more than 100 screens, which are expected to become operational over the next five years.

According to the agreement, “PVR would acquire 222,711 equity shares of SPI Cinemas, constituting 71.7 % of the paid-up equity share capital of SPI, from existing shareholders for a total consideration of 633 crore", PVR said in a statement. “It will also issue 1.6 million equity shares of PVR Ltd, constituting approximately 3.3% of the diluted paid-up equity share capital of the company, pursuant to a scheme of amalgamation between SPI and PVR." The transaction is likely to be closed in the next 30 days.

Of the 633 crore, 385 crore will be paid out of PVR’s internal accruals; 150 crore will be paid through fresh debt issuance and the balance 100 crore will be paid “subject to completion of certain milestones" by SPI, PVR said in a statement.

EY served as an adviser for the transaction.

For fiscal 2018, SPI generated a revenue of 310 crore. For the corresponding period, revenues of PVR stood at 2,365 crore.

Besides making PVR a leader in south India, which has the highest per capita movie consumption in the country, the SPI acquisition will help PVR diversify its content risk.

The average occupancy rate for SPI is 58%, much higher than PVR’s 31.3%.

The acquisition will also increase south India’s share in PVR’s overall screen portfolio from 26% to 35%, with maximum number of screen additions in Tamil Nadu.

At present, PVR has 47 screens across Tamil Nadu, which will go up to 89 post the acquisition.

“South India has a robust local box office with three big languages—Tamil, Telugu and Kannada—contributing 37% to the Indian box office. Ability to schedule multilingual content further reduces business risk," PVR said in a presentation. Post acquisition, box office revenue from regional films for PVR will increase from 19% to 22%.

Owners of SPI, Kiran M. Reddy and Swaroop Reddy, will continue to remain associated with the business and provide strategic guidance in integrating the business with PVR and create value for all the stakeholders, PVR added in the statement.

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