The Virgin Group has merged its Megastore retail businesses and Virgin Cinemas to form Virgin Entertainment Group. The consolidation reflects the company’s plans to bow cinemas and cafes alongside its music retail outfits in some markets.

“Both Megastores and Cinemas are extremely important carriers of the Virgin brand worldwide,” Virgin founder Richard Branson said in a statement. “This deal will allow us to extend their scope of operation dramatically over the next couple of years as an integrated business.”

Big plans

The Megastores operation, which is overseen by Virgin Entertainment CEO Ian Duffell, recently launched a Las Vegas store and has plans for more than a dozen outlets in the U.S. over the next two years.

The chain is the industry’s most profitable — a notable feat considering the current lackluster environment of the retail music industry.

The merger deal includes a financing package for expansion, including a credit facility of $240 million provided by Bankers Trust Co.

The new group excludes Virgin’s 25% stake in W.H. Smith’s 75%-owned Virgin Our Price retail operation in Britain.

Virgin Entertainment will operate 58 music-based Megastores in 11 countries and 27 movie theaters in Britain and Ireland, with expected total revenue of more than $576 million.

Virgin will hold 70% of Virgin Entertainment. U.S. investment groups Texas Pacific Group and Colony Capital Inc. will hold 14.3% and 10%, respectively, while Singapore’s Hotel Properties Ltd. will have a 5.7 % stake.

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