Buyer Hoyts could itself be on block

Hoyts Corporation is snapping up a competitor to consolidate its position as the country's second biggest cinema chain but could itself be on the block in the near future.

Hoyts yesterday said it was buying the Berkeley Cinema Group, New Zealand's fourth biggest chain, for an undisclosed sum to beef up its position in Auckland.           

However Hoyts chairman David Kirk told BusinessDay the group's owner, Pacific Equity Partners (PEP), was considering selling its Australasian cinema business.

Mr Kirk said PEP recently spoke to a number of investment bankers and is looking at options for Hoyts. These include retaining the business, selling it to another company or floating it on the sharemarket.

"In the next few weeks we'll be able to take a good look at the business and do a range of analysis, valuations and so on and then make a decision from there," Mr Kirk said.

PEP bought Hoyts from Publishing and Broadcasting Ltd and West Australian Newspapers Holdings for A$440 million (NZ$567.6m) - including A$140m of debt - in 2007.

The Hoyts-Berkeley deal closely follows last month's $61.1m sale by SkyCity Entertainment Group of SkyCity Cinemas to Australia's Amalgamated Holdings.

It also comes at a boom time for the industry with 2009 the highest grossing box office year in New Zealand history. Takings of $169.9m were an 8.5 per cent rise from 2008, the previous record year, and 2010 is off to a strong start helped by Avatar.

The James Cameron directed three-dimensional (3D) extravaganza has made a record-breaking US$2.64b (NZ$3.7b) so far at worldwide box offices since its December 18 release.

The Berkeley deal, with Hoyts buying the business from Auckland firm Everard Entertainment, will require Commerce Commission and Overseas Investment Office approval. Hoyts is confident of achieving both and expects the deal to be completed by June.

Adding Berkeley's 5-6 per cent national market share will take Hoyts to about 25 per cent, still well behind market leader SkyCity Cinemas which has about 40 per cent. Reading, number three, has market share in the late teens.

Combining Berkeley's four Auckland complexes and 21 screens with Hoyts' will give the combined group six complexes and 39 screens in the city of sails. Although still a distant second to SkyCity Cinemas' eight complexes and 73 screens, that is a significantly increased presence.

"It [Auckland] is the fastest growing market so you need to have good exposure there if you're to maintain market share and earnings growth," Mr Kirk said.

Mr Kirk, who said Hoyts had looked at SkyCity Cinemas when it was on the block, said a number of screens would be converted to digital in coming years at a cost of about $100,000 per screen. He was confident the investment could be recovered through higher admissions and small price increases for 3D films. There are currently 410 screens nationwide with only 21 in digital 3D.

Andrew Cornwell, Sony Pictures general manager and a Motion Pictures Distributors Association board member, said he hoped a combined Hoyts-Berkeley would see the establishment of a good local head office operation dedicated to the New Zealand market rather than the merged group being directed out of Australia.

Everard Entertainment director Barrie Everard had not returned calls seeking comment by press time.

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