PVR and Inox Leisure to merge via stock swap

In a way, the merger of PVR and Inox Leisure was a deal that was wanting to happen between two of the largest multiplex entertainment players in India. The combination of the pandemic related lockdowns, weak footfalls in malls and the onslaught of OTT had posed severe challenges to the multiplex companies.

Amidst mounting losses and a fall in the revenue pie, consolidation was the only way out. This deal was just waiting to happen.

Over the weekend, the Board of Directors of PVR Limited and INOX Leisure Limited, approved amalgamation of INOX with PVR via a stock swap deal. No cash will be exchanged in the deal and will be entirely done by exchange of shares.

The promoters of Inox will continue to be the co-promoters of the combined entity PVR Inox Ltd. However, Sanjay Bijli of PVR will not take over as the Managing Director of the combined entity, post-merger.

The existing top management of INOX Leisure including Pavan Kumar Jain and Siddharth Jain will be appointed as Non-Executive Directors of the combined entity.

Of course, this is just the first stage and the amalgamation of the two companies is subject to the approval of the shareholders of PVR and INOX respectively.

In addition, the deal will also need the approval of SEBI, the stock exchanges, the NCLT and also the Competition Commission of India (CCI).

For now, all the individual theatres of PVR and Inox will continue under their respective branding. However, any new multiplex screens opened after the merger will be branded as PVR INOX.

The PVR group will see a dilution of their stake in favour of Inox Promoters. Post the merger, the promoters of PVR will hold 10.62% stake in the combined entity while the promoters of INOX promoters will hold a 16.66% stake in PVR Inox Ltd.
 

The numbers are huge. Currently, PVR operates 871 screens across 181 multiplex properties located in 73 cities. On the other hand, INOX operates 675 screens across 160 multiplex properties in 72 cities.

The combined entity will have 1,546 screens, 341 multiplex properties in 109 cities. PVR Inox will enjoy a combined market share of 46% of the multiplex entertainment market, without adding the benefits of synergies.

Where PVR has an advantage, is not just in number of screens, but also on revenue and profit flows. For instance, ad revenues per screen of Inox is 33% lower than that of PVR. Post the merger, there will a sharp rise in average realizations.

Similarly, if the ad revenues are combined with higher convenience fee charged by PVR, the total advantage that PVR enjoys over Inox is nearly Rs.150 crore of EBITDA. This gap is likely to be bridged post-merger.

As the economy gets back to normalcy and revenue spending picks up, what the multiplex players will really need is bargaining power. The merger will give them size and hence higher bargaining power in terms of rentals, cost of content, marketing spends, F&B sourcing etc.

The combined entity will have a much better bargaining position in cutting finer deals with their vendors and the customers. The deal is likely to be completed in 9 months.

Behind all this noise, the big challenge for PVR Inox will be how to address the fast growing challenge of OTT. That would be a different subject of discussion altogether.