PVR-Inox Merger: A Blockbuster Deal in the Making?

Published by Sharekhan Education | April 4, 2022

PVR-Inox Merger: A Blockbuster Deal in the Making?

Amit Pathak | Sharekhan Education

Leading multiplex players in India, Inox Leisure and PVR have decided to shake hands and merge their operations. In the words of Siddharth Jain of Inox, it is the “Coming together of two iconic cinema brands”. They will name the merged entity PVR Inox Limited. The joint entity will be India’s largest film exhibition company, with 1,546 operating screens across 341 properties and 109 cities. And most critically, the merger would mean PVR-Inox will operate almost one in every two screens in India.

As per the deal, INOX will merge into PVR, with Inox Leisure’s shareholders receiving three PVR shares for every 10 shares of Inox Leisure. Post-merger, Inox Leisure’s promoters will have a 16.66% stake in the combined entity. PVR promoters will have a 10.62% stake, with Ajay Bijli of PVR set to be appointed as the MD of PVR Inox Limited.

Strategic Rationale for the Merger

Synergy benefits are expected to accrue both on the revenue and cost front. The combined entity is expected to get better yields on advertising because of a larger network of screens. Analysts also expect the new entity to move towards premiumization with increased average ticket price and spend per head. The balance sheet strength of the combined entity will drive screen additions, with the merged entity targeting to add around 200 screens every year, increasing penetration into smaller towns.

The combined entity is also likely to enjoy greater bargaining power across the value chain, with producers, distributors, and online ticket platforms. And in addition to saving on content costs, marketing spending, and food & beverage spending, the new entity is also expected to save on operating costs on a corporate level. Another advantage is that the new entity is going to face limited competition.

Due to Covid, the government waived Competition Commission of India  approval for the merger of entities with less than Rs 10 billion in revenues. And owing to depressed revenues due to Covid, the merger doesn’t require CCI approval. However, CCI has the right to raise queries and is one of the possible hurdles to the merger.

To Conclude

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