With the fear of contracting the coronovirus receding now and the demand for movie-watching likely rising and seeing a strong rebound here on, the merger of Inox and PVR after the announcement saw a sharp surge in its share prices.
Inox’s shares rose about 13% to Rs531 apiece, surpassing their pre-covid highs of Rs495 per share seen on 24th February 2022, and PVR’s shares rose by 8% and are marginally lower than the pre-covid highs.
Now the combined entity will become the largest film exhibition, creating a behemoth and operating a total of 1546 screens across 341 properties.
Synergies of this merger
This merger is focused on building scale to improve efficiencies and enhance productivity in order to fight increasing competition with the OTT platforms and the movie industry in general.
The merged company would command a 44 per cent market share in terms of box office revenue. One of the benefits of this merger would be on ad revenue and convenience fee leading to better yields on advertising. Also the combined entity may even command a further premium over medium term.
Experts have noticed that one of the key factors driving the surge in exports is the pent-up demands which were not met during the major waves of the Covid-19 pandemic.
Synergies on other factors such as spend per head and average ticket prices would be expected to be derived from a medium-long term perspective.
Tasks ahead of PVR and Inox
Operational details like Inox following strict vegetarian menu would be worked out in the process, while making sure that the average occupancy increases beyond 35% and then pay for the F and B to make the business model work.
What does this merger mean for Investor?
Shares of PVR and Inox Leisure Ltd. surged on Monday after the announcement of the merger. It was agreed upon that Inox will merge with PVR and its shareholders will receive shares of PVR of every 10 shares held by them in Inox. The merged entity will be named PVR INOX Ltd soon.
For investors, the swap ratio is favourable to INOX investors by 12 per cent, due to its zero net debt situation as compared with PVR's net debt at Rs857 crores. The deal is also expected to boost free cash flow, ensure a stranglehold over real estate and bring in cost synergies.
It is believed that this merger will take over six months as it will be subject to approvals from the National Company Law Tribunal (NCLT), Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI), stock exchanges, and shareholders.
Conclusion
Merger and Acquisition activity, especially by consumer brands, is typically immediately cheered by the market participants and there is a reasonable surge in the buying interest. It is believed that the merged entity will create a strong business entity which would help the investors/traders to buy the shares for a long-term. This merger is expected to provide substantial bargaining power over the entire ecosystem.
