Sony Corp. and Cineplex Odeon Corp. agreed Tuesday to merge their movie theater operations, creating a $1 billion giant that could crowd out competitors in key North American markets.
Sony will own 49.9 percent of the voting shares of the combined company, to be called Loews Cineplex Entertainment. Seagram Co.’s Universal Studios, which already owned a Cineplex stake, will own 26.7 percent of the merged company after investing $85 million in it, the companies said.
The merger gives Sony, which dominated the summer box office with films such as “Men in Black,” a far more powerful role in how its movies are distributed.
“It means Sony will be the dominant theater operator in critical urban markets in the U.S., where studios release their biggest films,” said analyst Gary Farber of NatWest Securities Ltd.
For struggling Cineplex, “it’s a way to slice off a big chunk of their debt,” Farber said.
The merger comes amid accelerating consolidation in the movie theater industry as companies seek to cut operating costs and gain more clout with studios by merging. Producer Norman Lear’s Act III movie theaters and United Artists Theaters are on the auction block.
The transaction could test federal tolerance of Hollywood studios owning movie theaters, prohibited 40 years ago by regulators concerned about movie moguls monopolizing the way films are distributed. Sony is being sued in New York by a theater owner who claims the company discriminated against his theater operation.
Under the proposed transaction, Cineplex Odeon shares will be exchanged for shares in the new company. Loews Cineplex will have about 452 million shares outstanding and will be traded on the New York and Toronto stock exchanges. The transaction is expected to close in six months.
