The largest cinema chain in South Korea CJ CGV became interested in the Russian market. The company conducted consultations on a possible partnership with the ADG Group, which manages the old Soviet style cinemas, but settled on another option — one of the largest cinema chains “Karo”. CGV conducts due diligence of the network and wants to acquire controlling interest.
Top manager of a rival cinema chains knows that representatives of “Karo” met with CGV in June, but the Koreans were not in agreement with the discussed price. Late Ausgust 2017 more than 30 people from CGV have arrived in Moscow for negotiations with the “Karo” (this was their third visit this year). CGV is conducting due diligence of the network to apply for the purchase of the controlling interest in “Karo”. Shareholders of “Karo” are UFG, the Russian Direct Investment Fund (RDIF) and the American businessman Paul Heth — are interested in developing distribution and do not tend to sell their shares. The industry now comes to life after several years of stagnation.
CGV, a member of a major Korean group CJ Group, manages more than 3 thousand screens in different countries, including South Korea, China and the United States, including 1 thousand— in the domestic market. A year ago, the company bought the leader of the cinema market of Turkey “Mars Cinema” for $687 million and is among the five largest cinema chains in the World.
CGV aims to quickly build up a network: the company had previously announced plans to manage 10 thousand screens worldwide by 2020.
There are only 4.5 thousand screens in Russia, and the top ten largest operators control less than half of them. “Karo” owns 219 screens, that is 4,8% of the market according to “Nevafilm Research”. This is the fourth network by number of screens “Cinema Park” and “Formula Kino” owned by Alexander Mamut and the Urals “Primier Zal” and “Kinomaks”. In 2012 “Karo” was owned by consortium consisting of Baring Vostok, RDIF, UFG and Paul Heth. They were going to spend $100 million over three years to the opening of new cinemas. In 2014 a new investment of $150 million was announces. Meanwhile, situation in cinema business from worsened due the crisis: rents in shopping centers has risen, people began to save on entertainment. In 2016 the largest shareholder is Baring Vostok exited “Karo” business with a loss, and its shares were bought by UFG gaining control of the network.
Revenue of the “Karo” parent company — “Karo film management” LLC in 2016 rose 4%, to 5.29 billion rubles, the net loss decreased from RUB 670 million to 82 million rubles. Revenue growth has secured three new sites of the network in Moscow and the Moscow region, the new format of Cinema.Bar and the “Karo.Art” project, said president “Karo” Olga Sinyakova. The company has invested in software and data storage systems that allow then to effectively manage supplies and staff, and this year it expects revenue growth of 15%, she said. At the same time, “Karo” can be burdened with large debt and high costs.
CGV has long been seriously looking at the Russian cinema market. According to the company, they are interested in “Karo” with a view to further consolidation of the market in the future. Earlier CGV discussed the partnership with the ADG Group of Pechersky brothers. ADG manages the Soviet style cinemas in Moscow and borrowed money from VTB bank to open entertainment centers in those cinemas.