PVR INOX merger, a price-fixing strategy?
PVR and Inox announced their intention to merge to form PVR INOX. And they will now control 50% of India's multiplex industry in one swoop — a merger of epic proportions.
The combined entity will be known as PVR INOX Ltd, with existing screens continuing to be branded as PVR and INOX, respectively. PVR INOX will be the brand name for new cinemas opened following the merger, the companies announced on March 27.
INOX Leisure and PVR saw their share prices surge 20% and 10%, respectively, on 28th March, as the two largest multiplex chains in India announced their intention to merge operations. This is an extremely high jump. The market is using its invisible hand to highlight that the merger has given them enormous hope. They expect both revenues and profitability of the entities to become significantly better. This article will explore the reasons behind such a belief.
The merger will give both companies a lot of bargaining power on both the suppliers and customers side. OTT Platforms have been taking up a lot of space in the Movie Industry during the Pandemic. Some producers are cutting short the number of weeks for Cinema to release the movie on OTT earlier. Moreover, there is competition between PVR and INOX for advertisements. This brings down the prices they can charge. On the other side, Customers may need to spend more both on movie tickets and add-ons like Popcorn. The sort of power which such a merger can bring is immense.
Here comes the Competition Commission of India. If there is any Appreciable Adverse Effect on Competition (AAEC) , then they can stop the merger. However, there are certain clauses that restrict them as well. If the combining entities have a revenue in tototal of less than 1000 crores then they do not need explicit CCI approval. In this case, due to the lockdowns, the sum total of revenues of PVR and Inox had come crashing down to 300 crores (FY21) from 5000 crores (FY20). Hence, the timing of the merger could not have been better.
According to the agreement, INOX will merge with PVR at a share swap ratio of three PVR shares for every ten INOX shares. Following the merger, the promoters of INOX will join the existing promoters of PVR as co-promoters of the merged entity. The promoters of PVR will own 10.62 percent of the combined entity, while the promoters of INOX will own 16.66 percent, it added. What remains to be seen is how the merger pans out in the future and if all goes well.