Agreement would give Carnival Films 280 movie screens operated by India's third largest film exhibitor
Mumbai:Carnival Films Pvt. Ltd, backed by a Kochi-based commodity trading company, may be close to acquiring a majority stake in multiplex operator Big Cinemas, a division of tycoon Anil Ambani’s Reliance MediaWorks Ltd, in a deal that would advance consolidation of the movie exhibition industry.
A definitive agreement, which would give Carnival Films 280 movie screens operated by India’s third largest film exhibitor, is expected to be signed shortly, three people familiar with the situation said on condition of anonymity. The potential deal value could not be ascertained.
There are other contenders as well for the stake, including PVR Ltd, Inox Leisure Ltd, a Malaysia-based multiplex chain and a US-based private equity fund, said two of the three people mentioned above. The names of the Malaysian and US entities weren’t known.
If it materializes, the deal would be the third transaction in the movie exhibition business in three months, as multiplex operators seek consolidation, partly to increase their bargaining power with film producers and distributors, and to gain a bigger share of box office receipts in India’s ₹ 9,200 crore movie industry.
Inox Leisure, India’s second largest multiplex operator, acquired Delhi-based Satyam Cineplexes Ltd for nearly ₹ 240 crore, paying ₹ 182 crore in cash and taking over its debt in a deal that expanded Inox’s presence to 50 cities, with 91 multiplexes and 358 screens; and Housing Development and Infrastructure Ltd (HDIL) sold its multiplex business Broadway Cinemas to Carnival Cinemas for an undisclosed amount.
A senior Carnival Films executive, requesting anonymity, confirmed that the company is close to acquiring Big Cinemas and that the acquisition would be funded through international accruals and debt backed by Kochi-based international agri-commodity trading company Advantage Overseas Pvt. Ltd (AOPL),
AOPL trades agri-commodities such as soyameal, rapeseed meal, maize, castor seeds, wheat and wheat flour, rice, sugar and pulses.
Carnival Films chief executive officer (CEO) P.V. Sunil did not reply to text messages seeking a comment. A spokesperson for Big Cinemas also declined comment. Emails sent to PVR and Inox seeking comment went unanswered.
“The contour of the final transaction is yet to be arrived at, but Big Cinemas will not entirely exit the business. It will form a strategic alliance with an existing cinema exhibition chain that will run the daily operations and it will receive proportionate revenues from them as part of the partnership," said the second of the three officials cited above.
“Reliance MediaWorks will also invest in the venture as part of its growth strategy because it believes there is growth potential in this business," said the person.
The deal will be on the lines of a recent July transaction under which Reliance MediaWorks merged its global film and media business with media and entertainment services provider Prime Focus Ltd and both partners infused ₹ 120 crore each through preferential a allotment of shares into the combined entity.
Consultancy firm EY is advising Big Cinemas on the deal, which is expected to close in a month’s time, the second person said. EY declined to comment.
“We certainly do see the cinema multiplex industry continuing to consolidate inorganically as the real growth opportunity lies there. As economic growth slowed down over the last few years, very few malls have come (up), limiting the number of screens," said Jehil Thakkar, head of the media and entertainment practice at KPMG.
“Most of the big players are seeking inorganic growth options and scale is a very important part of this business," Thakkar added.
In a July interview to Mint, CEO Sunil of Carnival Films said India was a distributor-driven market.
“The more screens, the more bargaining power with distributors. You can also have better deals with retailers selling food in cinemas based on the volumes," he said.
Until July, Carnival had a presence in the southern region, mainly in four cities of Kerala, Tamil Nadu and Karnataka. After its acquisition of Broadway Cinemas, it now operates 75 screens. On 18 July, Carnival Group chairman Shrikant Bhasi said it wanted to expand to nearly 3,000 screens in India and abroad in the next three years.
Carnival is also in talks to acquire 175 screens from three separate multiplex operators in Andhra Pradesh, Punjab and Uttar Pradesh. KPMG is advising the company on these transactions.
“Consumer-led sectors are seeing valuations move up. Added to that is the fact that rapid consolidation is happening in the cinema exhibition space. The newer entrants would be forced to offer higher valuations as they look to build up scale," said Vivek Gupta, partner, mergers and acquisitions, BMR Advisors Pvt. Ltd, which advised Satyam Cineplexes on its sale to Inox.
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