Just a week after announcing a possible spin off separate listing of its cinema business, entertainment company mm2 Asia is in talks to merge this business, operating mainly under the Cathay brand, with competitor Golden Village.

As part of the deal, the parties aim to bring in new investors to help beef up the combined entity, which is going to be the largest cinema operator in town.

Mm2 Asia now runs 8 Cathay cinemas in Singapore, and 14 in Malaysia. The potential merger partner, Hong Kong listed Orange Sky Golden Harvest Entertainment (Holdings), runs another 14 cinemas under the Golden Village brand in Singapore. The Hong Kong company, previously known as "Golden Harvest" runs a total of 35 cinemas with 285 screens in Hong Kong, Taiwan and Singapore

The deal will need to jump through several hoops: approvals from both mm2 Asia and OSGH shareholders; approval of SGX and Hong Kong Exchange, as well as relevant government authorities, including the Competition and Consumer Commission of Singapore in relation to anti-trust issues.

Under the initial heads of agreement, the parties are still negotiating the financial terms.

<hr/><strong>SEE: <a href="https://www.theedgesingapore.com/news/ipo/mm2-asia-mulls-separate-listing-its-cinema-business"  target="_blank">mm2 Asia mulls separate listing of its cinema business</a></strong><hr/>

According to mm2 Asia, the merger terms will be discussed based on the FY2019 operating figures, subjected to mutually agreed adjustments.

For FY2019 ended Dec 2019, OSGH's Singapore cinema business generated a turnover of HK$810.3 million, down slightly from HK$822.1 million in the year earlier. Operating profit in the same period was HK$139.8 million, down from HK$150 million.

Unsurprisingly, Covid-19 has hit the cinema business hard. For the six months ended June 30 this year, Golden Village's Singapore revenue was just HK$137.4 million, due to the circuit breaker measures. It made a loss of HK$16.9 million. For the six months ended June 30 2019, it generated revenue of HK$401 million for its Singapore cinema business, and operating profit of HK$70.6 million.

If the merger is completed, the combined entity will be able to enjoy advantageous economies of scale, and provide more financial and operating stability.

The company also notes that there has been general disruption to the movie and cinema business, with the advent of content streaming apps and the growth of video content on social media. The merger would result in a stronger platform for the operation of the cinema business.

The funds from new investors will also provide the additional working capital for the combined business to cope with operating costs, and strengthen the balance sheet of the combined business.

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