🎬 INOX, PVR Merger: A Cinematic Masterpiece?
India's top two theatre chains have decided to join hands. Here's why.
Mergers and acquisitions are currently at an all-time high.Â
Be it the likely merger of Zomato and Blinkit or a little unlikely combination of Ola and Avail Finance, companies are teaming up to increase efficiency and to expand quickly.
And the latest merger to hit the town is Inox and PVR.
Wondering why these two rivals are merging?
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A Truly Filmy Jodi
PVR and Inox are the top two theatre chains in India.
While PVR has 871 screens in 73 cities, Inox has 675 screens in 72 cities.
But the pandemic has made them unlikely companions.
No matter how much you missed theatres in the pandemic, the empty theatres missed you more. Result?
Both companies have seen massive losses over the last two years.
Thanks to Covid and OTT, the way the world watches movies has changed drastically. Movie theatres are finding it increasingly difficult to attract the crowd and stay relevant.
Hence, the merger.
The merger is a share-swap deal (another recent trend) that will see INOX investors get 3 shares of PVR for every 10 shares of INOX they hold.
INOX Promoters will have a 16.66% stake in the new entity, while PVR promoters will have a 10.62% stake.
How Does the Merger Help?
Well, it will create the single biggest theatre chain in India with over 1,500 screens and a more than 40% market share.
Meanwhile, the other chains like Carnival and Cinepolis only have about 400-450 screens.
So, PVR INOX Ltd. (the name of the new entity), which will have a market cap of Rs. 16,000 crores, could become a monopoly.
It can use this power to leverage lower rent options, get better properties, and source more food and beverage options. In total, the synergy of the two theatre chains will lead to a benefit of over Rs. 150 crores.
This will also help cut down costs for both theatre chains. They won't have to spend extra money on expansion.
In fact, since the two big sharks no longer have to compete with each other, they may increase the prices of tickets and the already-super-expensive popcorn and other theatre food. Their gross margins on the food and beverage options are extremely high (as much as 75%).
This is exactly why even Cinepolis wanted to merge with PVR. But it seems like INOX won the race.Â
The happiness is visible on the bourses. INOX shares are up 20% and PVR shares are up 10% since the announcement was made.Â
Even though the deal could possibly create a monopoly, it may not need the Competition Commission of India's approval, according to Ajay Bijli, who will be the managing director of the new entity.
"Counsels have advised that the merger proposal with INOX does not need CCI approval as both of us were shut for two years due to the pandemic and companies' turnovers were impacted, which exempts us from the CCI purview."Â
Only Way Out?
Now many believe that this merger or one like it was a long time coming, the pandemic has only helped it along.
With the growing prominence of OTT services, the theatre chains had to make some moves to stay relevant.
But, are mergers the only way out?
Instead of just focusing on expansion, they could rethink their entire model to stay relevant.
They could experiment with launching yearly subscriptions that could allow people to watch a certain number of movies like MoviePass.
They could host special screenings that focus on building experiences that can’t be found elsewhere.
There are still people out there who crave the whole theatre experience and by catering to them (instead of alienating them with high prices), theatres could still survive the OTT era.
Long story short - sometimes the most common solution might not be the best way out.Â
But we are no crystal-ball gazers. The INOX-PVR duo seems to be very lucrative. Will it become an iconic pair or a flop show that fades away into oblivion?
Only time will tell…
Let us know what you think about the theatres v/s OTT war on Twitter.
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