Inox Leisure, which owns the Inox movie hall chain, holds 50.27% stake in Fame India, while RCap owns 35.39%. The rest is owned by public shareholders.
The two big shareholders fought for control of Fame India for a year after Inox purchased 43.28% stake from its former managing director Shravan Shroff in February 2010 for R66.26 crore at R44 per share and later hiked in its stake to 50.27% by purchasing shares from the open market.
Reliance MediaWorks, which owns Big Cinema movie halls, made a counter-offer to public shareholders at R83.40 apiece to hike its stake.
Inox said in its filing to shareholders that it would subscribe to any unsold shares in the issue, while an RCap spokesperson declined to comment. An email to Reliance MediaWorks managing director Anil Arjun was directed to RCap, which owns the stake for Reliance MediaWorks. Inox plans to use the money raised to repay R70 crore in loans from ING Vyasa Bank.
RCap needs to subscribe to its shares to maintain its shareholding; if not, its rival will increase the stake in the company. Some brokers and analysts FE spoke to said RCap will subscribe to the issue.
Anil Ambani will not forgo the rights issue, said SP Tulsian, a market analyst and share broker who runs his own firm. He will subscribe to it... He is the only serious player in the film exhibition business.According to him, Fame is a perfect fit for ADAGs diversified entertainment portfolio.
Reliance MediaWorks runs 240 big cinema screens across 75 cities in India, while Inox along with Fame have 257 screens. Anil Ambani would like to expand his multiplex operations and will definitely subscribe to the rights issue, said Deven Choksey, managing director at brokerage KR Choksey Securities.
If he doesn't, there will be doubts over his intention to run this business, said Choksey.
Deepak Asher, director of Inox Leisure was unavailable for comment.
Stock market experts believe it is rational for Ambani to subscribe to the rights issue, but media consultants did not take a clear stand.
Even if Anil Ambani subscribes to the rights issue, he will not have majority stake in Fame India, unless he decides to buy more from other shareholders, says Timmy Kandhari, leader entertainment & media practice at PricewaterhouseCoopers India. If he doesn't, his stakeholding will fall further and someone might buy him out. There's no clear indication on what he will do.
Brokerage houses feel it makes sense for Ambani to fully subscribe to the rights issue as he can buy shares at a much lower price, compared to Fame's average acquisition price of R75-80. If he buys shares later, he'll have to pay more, says an analyst on condition of anonymity. If he doesn't see value and exits this business, it will dent his image and lead his shares to tank. The analyst cannot be quoted as he is not authorised to speak to the media.
Indias R7,500-crore film exhibition business is growing at 12% every year, says a report by consultant Ernst & Young India released this year. National multiplex chains like Big Cinemas, Inox, PVR, Fame and Cinemax own 762 screens and command more than 70% share of box-office collections. On the BSE, Fame India shares closed 4.45% up at R46.90, while Inox Leisure rose 0.84% to close at R54.30 and RMW shares closed up 0.83% at R96.70.