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Sony, Cineplex in talks?
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June 19, 1997: 4:37 p.m. ET
Source: Sony Loews Theaters seeking to buy Cineplex Odeon
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NEW YORK (CNNfn) - Sony Corp.'s Loews Theaters unit is in negotiations to buy Toronto-based Cineplex Odeon Corp., a company worth an estimated $700 million, a person familiar with the discussions told CNNfn.
While such a deal would create one of the nation's largest cinema chains, the source, speaking on condition of anonymity, said an agreement is not imminent.
Sony Loews and Cineplex Odeon declined to comment on the matter, as did key Cineplex Odeon shareholders Universal Studios and Universal's parent, Seagram Co. Ltd.
Analysts and investment bankers say Cineplex Odeon has a so-called "enterprise value" of about $700 million., based on the company's outstanding debt and equity levels at current prices.
However, a Sony Loews-Cineplex Odeon deal faces many hurdles.
First, the two sides must come to agreement on price.
Second, a deal would need approval from Universal and Canada's powerful Bronfman family, which controls Seagram. Collectively, the Bronfmans and Universal own 64.6 percent of Cineplex Odeon stock.
Should a deal goes forward, a combined Sony Loews-Cineplex Odeon entity would operate 2,500 theater screens in the United States and Canada.
Sony currently has 900 movie screens through 135 theaters across 14 states, mainly on the East Coast, eastern Midwest and in Texas.
Cineplex Odeon operates over 1,600 screens through 360 theaters in the United States and Canada.
Combining the two companies would create strong competition for Carmike Cinemas Inc., known as the "Wal-Mart of the theater industry" because it operates 500 theaters in small U.S. towns.
A deep-pocketed partner such as Sony Corp. would also give debt-laden Cineplex Odeon much-needed funds to compete against rival theater chains.
As of March 31, Cineplex Odeon had $317 million of long-term debt outstanding, according Securities and Exchange Commission filings.
By contrast, Cineplex Odeon only has a market capitalization of $180 million, based on Wednesday's closing stock price of 1-3/4.
Cineplex Odeon became burdened with such a relatively heavy debt load when it took on a strategy in recent years of expansion through acquisitions.
This occurred while the rest of the industry tried to expand by adding more screens to existing theaters.
"They [Cineplex Odeon] were trying to build mass, but they were doing it at a time when they also had to make investments within, too," said one analyst, speaking on condition of anonymity.
Yet despite Cineplex Odeon's heavy debt-load, Sony would, for several reasons, likely have to pay a premium to buy the company, the analyst said.
He explained that with sophisticated shareholders such as the Bronfman family, Sony would have to make an unusually large offer.
In addition, the analyst said that because of Cineplex Odeon's heavy debt load, Sony is probably more concerned about negotiating with lenders than with shareholders.
"Premiums [could be] paid to get the shareholder out of the way," the analyst said.
Cineplex Odeon is scheduled to hold its annual shareholder meeting June 26. However, a company spokesman said the meeting's agenda does not include discussing any possible business combinations.
-- Robert Liu
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