Deal Analysis: Multiplex Chain PVR Proposed Acquisition of SPI Cinemas in an 850 Cr deal

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On 11th August 2018, the Delhi origin multiplex chain PVR announced that they will be acquiring the Chennai based brand, SPI Cinemas, originally called Sathyam Cinemas.

History of PVR Cinema

Initially started as a joint venture between Priya Exhibitors Pvt. Ltd. and Village Roadshow Ltd. in 1995, PVR’s commercial operations began in 1997. In the past years, the public entertainment company has grown rapidly and today has a mighty presence of 638 screens in 51 Indian cities.

Rationale Behind the Deal

PVR BUBNA                                      A view of the grandeur of the multiplexesSPI BUBNA

PVR is further looking to expand its hold in South India with the strategic acquisition of the iconic SPI Cinemas, whose theaters, primarily Sathyam Cinemas, are very often used by filmmakers for film premieres and audio launches. Doing so will increase PVR’s screen count to over 700 across 152 properties and 60 cities. “The acquisition of SPI Cinemas is of significant strategic value for PVR and will further cement our market leadership position in India. The acquisition will make PVR the undisputed leader in the South Indian market and provide an attractive platform for us to expand in that geography, which at present is highly under penetrated in terms of multiplexes,” said Ajay Bijli, Chairman and Managing Director of PVR Ltd.

PVR

Deal Structure

The PVR-SPI deal is structured as a cash and stock one, the closure of which will give PVR the ownership of privately held SPI Cinemas’ 2,22,711 equity shares that constitutes 71.69% of the paid-up share capital of the latter. The listed company PVR in exchange will pay a consideration of 633 crores, along with 16 lakh own equity shares comprising 3.3% of the diluted paid up equity share capital of the company. At the current share price of 1325 (NSE), the total deal value sums up close to 850 crores.

PVR CHART
Candlestick chart with 1-day time frame indicating PVR’S price trend and volume

Market Response to the Deal

After the announcement of the acquisition that took Chennaiites by surprise, the Monday morning opening of the stock market did not welcome the deal with widely open arms either. The share price of PVR Ltd. opened at a slight positive, but tanked soon enough to a 3.5% low for the day, closing at 1283.5 (down 3%). However, this fall was not much of a concern as it was temporary, and more importantly, supported by low volumes. Since then, the price has seen healthy consolidation and low volatility, currently crawling on the fence at its 200-day moving average. A move above or below its range of 1310-1340 could well trigger a move. The long-term impact of this acquisition on the company could be quite constructive for PVR, expanding its reach and proclaiming itself in 9 more cities.

Conclusion

Following this process which is likely to be completed in the next 9-12 months, it will make PVR the seventh largest exhibitor in the world in terms of the annual admissions at its theaters. “This merger combines two proven business models and will create significant value for moviegoers as well as all the stakeholders,” said Kiran Reddy, co-owner of SPI Cinemas along with Swaroop Reddy.

PVR aims to earn a revenue of 500 crores from its target by 2020. Bijli has his part of faith in the acquisition and sees the company gradually increasing its share post closure. A bright future awaits the company. “This transaction is a significant step in helping us achieve our vision of having 1000 screens by 2020,” Bijli said.

What the facts have to say is pretty clear and evident, but how those known facts get executed in divergent situations is the real deal, which only time will tell.