In advance of its proposed breakup, Viacom announced Monday that it is selling its Canuck theater chain Famous Players to chief rival Cineplex Galaxy in a $400 million deal that gives the Toronto-based Galaxy a dominant position in the Canadian exhibition biz.
Sale of Famous Players leaves Canada with only one major national exhib, which will likely prove a hardship to Canuck producers and distributors.
“They’re close to having a monopoly,” said Christian Larouche, prexy of Montreal distrib Christal Films. “I really don’t know what will happen. We will have less power to negotiate. For Canadian film it’s going to be tough, and we’re going to have to fight for our product.”
Viacom chair-CEO Sumner Redstone said Famous Players has been an “important part of the Viacom family business,” but the conglom is “refining our strategic focus on our core content creation engines.”
That refining could be cemented today when the Viacom board meets to mull and possibly take a final vote on the conglom’s split in two, which will separate “high-growth” Paramount and cable nets including MTV from the “value company,” which would include the CBS empire, cabler Showtime and publishing house Simon & Schuster.
Post-split, Redstone will remain chairman and controlling shareholder of each company.
At today’s board meeting, Viacom directors also are expected to name Redstone’s daughter Shari Redstone vice chair — an official acknowledgment that she will one day take over for her father, who recently turned 82. She runs the family’s privately held U.S. movie theater chain, National Amusements.
Viacom put Famous Players on the auction block months ago.
Cineplex Galaxy and Famous Players are Canada’s two leading national exhibs. Famous Players has 81 locations with 787 screens, while Cineplex Galaxy has 86 locations with 775 screens.
Execs at Alliance Atlantis, Canada’s largest indie film distributor, were similarly less than enthusiastic about the deal, which is expected to close in the third quarter.
“We like to have more strong exhibitors rather than fewer,” said Paul Laberge, exec VP with Alliance Atlantis’ distribution company. “We’ll certainly be interested in seeing who picks up those theaters.”
The Canadian government’s Competition Bureau has already given its OK to the deal under the condition that Cineplex Galaxy sell off 35 cinemas with 284 screens that generate annual box office revenues of $80 million.
The cinemas to be sold are located in six provinces and in all the major cities where both Cineplex Galaxy and Famous Players currently operate. Cineplex will have to sell cinemas in Victoria and Vancouver, British Columbia; Calgary, Edmonton and Lethbridge, Alberta; Saskatoon, Saskatchewan; Kingston, Toronto and Ottawa, Ontario; and Montreal and Quebec City, Quebec.
“Given the degree of concentration in the industry and the barriers to entry into the market, it is essential that these theaters be sold off to ensure that this merger does not result in a substantial prevention or lessening of competition,” said Gaston Jorre, senior deputy commissioner at the Competition Bureau.
AMC may buy in
Speculation immediately arose that AMC may increase its presence in Canada by snapping up some or all of these cinemas. AMC has screens in southern Ontario and Quebec.
“I am thrilled to make this announcement,” said Ellis Jacob, prexy-CEO of Cineplex Galaxy. “Working in conjunction with Onex Corp., our largest unit holder and controlling partner, we are bringing together two great companies and are creating an exceptional opportunity to build value through an improved cost structure and expanded product offerings.”
Cineplex Galaxy expects to finance the deal through a combination of debt and equity. Scotia Bank, RBC Capital Markets and National Bank Financial have provided commitments to finance the purchase.
Famous Players had revenues of $416 million and cash flow of $41 million in 2004. Cineplex Galaxy had revenues of $283 million and cash flow of $60 million.