The companies behind Cathay Cineplexes and Golden Village have entered into an initial agreement for a possible merger that would create the largest cinema operator in Singapore.
Singapore-listed mm2 Asia, which owns Cathay, and Golden Village owner Orange Sky Golden Harvest Entertainment (Holdings), or OSGH, aim to bring in new investors to inject more capital into the combined business as part of the deal.
mm2 Asia owns eight cinemas in Singapore under the Cathay brand, and 14 cinemas in Malaysia under the Cathay Cineplexes Malaysia, Mega Cinemas and Lotus Fivestar labels. It also owns a movie film distribution business and an online streaming business.
OSGH has 14 Golden Village cinemas here. The Hong Kong-listed company, previously known as Golden Harvest, runs a total of 35 cinemas with 285 screens in Hong Kong, Taiwan and Singapore.
A merger of the two cinema businesses would not only provide economies of scale, but also give more financial and operating stability to mm2 Asia’s cinema business, given the challenges faced by cinema operators since the Covid-19 outbreak, mm2 Asia said in a filing with the Singapore Exchange on Wednesday evening.
The movie and cinema business here has also faced disruption with the advent of content streaming apps and the growth of video content on social media, the company noted. The merger would therefore result in a stronger platform for the operation of the cinema business, it said.
The deal faces several regulatory hurdles, namely, approvals from both mm2 Asia and OSGH shareholders, nods from SGX and the Hong Kong Exchange, as well as the relevant government authorities, including the Competition and Consumer Commission of Singapore.
The initial agreement, known as a heads of agreement, will be terminated if the terms of the definitive agreements cannot be agreed upon, or the conditions of the proposed transaction cannot be satisfied, by Dec 3 next year.
A week ago, mm2 Asia announced a possible spin-off and separate listing of its cinema business on the Catalist board. That spin-off is being proceeded with in parallel with the work on the proposed merger, the company said in Wednesday’s announcement.
In the event that the separate listing is completed successfully, mm2 said the parties will discuss in good faith the basis on which the proposed merger and beefing-up of the combined business with new investors would take place, taking into account the listed spin-off business.
mm2 Asia also said the parties are still negotiating the financial terms, adding that the merger terms will be discussed based on financial year 2019 operating figures, subjected to mutually agreed adjustments.
For the six months ended June 30, Golden Village’s Singapore cinema business made a loss of HK$16.9 million (S$2.9 million) on revenue of just HK$137.4 million, due to circuit breaker measures, The Edge Singapore reported.
This compares with operating profit of HK$70.6 million and revenue of HK$401 million for the year-ago period.
mm2 sank to a net loss of $22.4 million for the half-year to Sept 30, from a net profit of $9.18 million in the year-ago period. This comes as revenue fell by 83 per cent year on year to $19.9 million, hurt by safe-management measures that limited operations in its core cinema and events businesses.