Inox buys 43% stake in Fame,open offer soon

MULTIPLEX operator Inox Leisure on Wednesday announced that it had acquired a 43.28% promoters' stake in Fame India in an all-cash transactionfor Rs 66.48 crore. In line with SEBI regulations, Gujarat Fluorochemicals Ltd (GFL)-owned company will acquire another 20% from Fame's shareholders through an open offer. The deal, which values Fame at Rs 153.6 crore, will mark the exit of the Shroff family from the multiplex business. 

    The transaction, which was executed through a block deal at Rs 44 per share, will now make the Inox-Fame entity the second-largest player in the Indian multiplex industry in terms of number of screens. It will have 204 screens, of which Fame accounts for 95 and Inox with 109. Big Cinemas, a Reliance ADAG company, is the largest with 246 screens. PVR has 108 screens and is in the midst of a transaction to acquire DT Cinemas' 26 screens. DT Cinemas is a DLF subsidiary. 
    For Inox, the acquisition of the Shroff family's stake will be its second buyout in the multiplex space. In 2006, Inox acquired Calcutta Cinema, a player in the business which operated under the "89 Cinemas" brand name. Deepak Asher, Director Inox Group of Companies, said the buyout of Fame will give his company a significant advantage in cities like Kolkata, Bangalore and Baroda. "We will have a market share of 60-80% here. We are in a strong position in the West, East and South leaving us only the North tostrengthen," he added. Over the next 12 months, Inox says it will add about nine properties with Fame expected to add another six. Inox will fund the Fame transaction through a shareholder loan by its promoter company, GFL. Mr Asher said it was still early to speak on issues like a possible change of brand name. "We do not have to look at these issues till we get SEBI's clearance." 
    According to Vishal Mahajan, director (Investment Banking) at Yes Bank, Inox will also assume a debt of $13 million (approximately Rs 60 crore) of Foreign Currency Convertible Bonds (FCCBs) and another Rs 55 crore of bank loans. The enterprise value of Fame, as a result, will be around Rs 300 crore. The FCCBs are due for redemption in February 2011. Yes Bank represented Inox while Enam Securities was Fame's banker. On Wednesday, the Inox stock, at the BSE, was up 11.74% to end at Rs 85.65, while the Fame stock gained 4.89% to close at Rs 46.10. The Sensex was up 2.06%. 
    In this nascent exhibition industry, consolidation appears to be the way forward. According to Shravan Shroff, managing director, Fame India, it was important for value to be created through the deal. "The industry is quite fragmented and there is a need for it to grow. This will be India's largest multiplex chain in terms of box office revenue," he claimed. Mr Shroff said he will continue in his current position till the transaction is concluded. "That is a part of my fiduciary responsibility. I intend remaining in the entertainment business in the time to come though it is a little early to speak of my plans."