posted 02-22-2005 01:34 AM                    

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Cineplex Galaxy pondering acquisition of competitor Famous Players: official

Rita Trichur
Canadian Press

February 22, 2005

TORONTO (CP) - Cineplex Galaxy LP, Canada's second-largest theatre chain, is weighing whether to bid for arch-rival Famous Players, which has been put on the auction block by New York-based parent Viacom Inc., a Cineplex executive confirmed Monday.

"We would look at any opportunity to review it to see if it is accretive to our business," said Pat Marshall, Cineplex Galaxy's vice-president of communications and investor relations.

"We would definitely seek any regulatory approvals as needed, but beyond that, we can't really comment."

Toronto-based Cineplex Galaxy - which operates both Galaxy and Cineplex Odeon cinema brands - runs 86 theatres with a total of 775 screens in six Canadian provinces.

A successful takeover of Famous Players would give the company almost total control of the English-language movie theatre business in Canada - with about 178 theatres and more than 1,600 screens - and would almost certainly lead to intervention by the federal Competition Bureau.

Spokesman Tim Weil said the agency cannot speculate on future transactions, but noted that competition officials are aware of the possibility.

"In a general sense, it is safe to say that if there is a merger, the bureau is going to review the merger," he said.

However, one industry analyst, who requested anonymity, said such a deal - which could fetch up to $400 million US for Viacom - would most certainly raise red flags in Ottawa.

"If Cineplex were to buy it, they would have 75 per cent market share," he said. "I don't know how favourable the Canadian government would be to that type of proposal."

Cineplex Galaxy is a publicly traded company that operates as an income trust, an investment structure which entitles unitholders to monthly cash payouts. The company's shares (TSX:CGX:UN) closed at $15.24, up 14 cents, on the Toronto Stock Exchange.

Marshall's remarks followed a published report Monday that U.S. Media giant Viacom - which also owns Paramount Pictures and the CBS TV network as well as MTV, BET and Nickelodeon - was looking to divest its Famous Players division.

Viacom's shares (NYSE:VIA) - which did not trade Monday because Wall Street markets were closed for the U.S. Presidents' Day holiday - closed Friday at $36.58 US.

Famous Players, which recently celebrated its 85th anniversary, is Canada's top grossing theatrical exhibitor, operating 84 locations with 794 screens across the country. Spokeswoman Nuria Bronfman declined comment on the possible sale of the company.

Competition has stiffened in Canada's movie theatre industry in recent months, with both Cineplex Galaxy and Famous Players embroiled in a price war.

Last month, Famous Players announced it was slashing admission prices to $9.95 Cdn from a maximum of $13.95 at all of its Ontario theatres. The move followed similar price breaks in Calgary, Vancouver and Winnipeg over the last two years.

At the time, Cineplex Galaxy's chief executive, Ellis Jacob, said his company had already reduced prices in various communities, adding the discounts were substantially greater than those announced by rival Famous Players.

It was not immediately clear how a potential acquisition of Famous Players by Cineplex Galaxy would affect prices, but that same industry source speculated it would give Cineplex a definite upsurge in pricing power.

"Obviously Cineplex would like to buy them, and could use those assets," he said. "It could generate a lot of synergy out of that acquisition."

There are numerous other "independent" exhibitors in Canada, many operating only one theatre.

The largest of these other exhibitors include Kansas City-based AMC Entertainment International Inc. which operates theatres in Ontario and Quebec; Montreal-based Cinemas Guzzo; Empire Theatres Ltd. which operates theatres throughout the Maritimes; Landmark Cinemas of Canada in Western Canada; and Magic Lantern Theatres in the Prairie provinces.

Marshall, however, said Viacom's intention to divest is characteristic of recent changes in Canada's movie theatre industry.

Last December, AMC movie theatres - which operates 231 theatres with 3,560 screens in Canada, the United States, France, Hong Kong, Japan, Portugal, Spain and the United Kingdom - was privatized after being acquired by investment firm Marquee Holdings Inc. for $2 billion US.

"There have been a number of mergers and acquisitions and sales in the last little while," Marshall added. "So, you know, it is certainly something that happens from time to time within the industry."

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