Formula of merging
Nowadays the second Russian cinema chain by the number of movie theatres is being created. The Investment unit of Alfa-group – A1 consolidated its two chains – Formula Kino and Kronverk Cinema – in one company. New movie theatres shall be opened under the brand name of Formula Kino.
Formula Kino and Kronverk Cinema are merged into one chain, said a manager of one of the two film companies to “Vedomosti”. The both chains are controlled by А1: it’s the sole owner of Kronverk Cinema, and it holds 55.66 % of Formula Kino (the rest, according to the company’s source, belongs to one of the chain founders — Vladimir Zakharov). Mikhail Khabarov, the President of А1, confirmed that the chains are merged, and that the transaction will be accomplished in the nearest future. The transaction is cashless, A1 shall hold 75 % of the new company less 1 share, as said the President, the blocking shares shall be conserved by the minorities of Formula Kino (he does not name them). “Vedomosti” did not manage to interview Mr. Zakharov.
А1 acquired the controlling interest in Formula Kino at the beginning of the year and immediately announced the further merging with Kronverk Cinema. At the moment Kronverk is the fourth chain by size in Russia, it numbers 18 movie theatres (125 screens), Formula Kino is the sixth one with its 14 movie theatres (90 screens, according to Nevafilm Research as of November 1 ). Nowadays the consolidated chain, according to Mr. Khabarov, counts 237 screens, next year its number shall increase up to 282. For comparison: the largest chain of Russia Cinema Park (managed by Profmedia) now counts 29 theatres and 272 screens. As of the beginning of November, there were 3,000 functioning modern rooms in all in Russia.
The merging of Formula Kino and Kronverk Cinema is already the second transaction of such type, made on the Russian film market in recent years. In summer 2011 Cinema Park acquired Kinostar de Luxe chain, as well by means of merging.
Managing of one company is much more efficient than the managing of two, as the merging was explained by Mr. Khabarov: “In the nearest future we shall unite the offices, reduce the administrative expenses, a bigger number of screens will enable us to provide more profitable terms while buying films, and growing audience will convert the chain into a more attractive advertising channel, that will increase our profit as well.”
The merged chain will function under the brand name of Formula Kino as a more strong and recognizable one, said Mr. Khabarov. He also added: “They won’t change the sign on the former Kronverk Cinema movie theatres, the new ones will be opened under the brand name of Formula Kino.”
It’s a reasonable decision, agrees Sergey Kitin, the Director General of Cinema Park, the Formula Kino movie theatres look more prestigious and trendy, than the Kronverk Cinema ones and the Formula’s image among the developers of trade malls is much better. He suggests that A1 counts on improving the Kronwerk’s reputation due to the merging.
Next year the gain of the consolidated Formula Kino will make up about 200 million US dollars, EBITDA — about 40 million US dollars, as predicts Mr. Khabarov. At the moment, according to the proper data, the consolidated chain controls over 8.4% of box-office takings in the country and by this performance it yields only to Cinema Park, within the coming three years the company is planning to lead this share up to 15%.
A1 does not heal that in due course it will come out of the project and sell the movie business to a strategic investor. “But it will be possible to talk about the sale in two or three years only”, said Mr. Khabarov.