Company Town : Cineplex Odeon, Cinemark Plan Merger : Theaters: $300-million deal would create the largest chain of movie houses in North America.

Cineplex Odeon Corp. and Cinemark USA Inc. announced plans Thursday to merge the two movie theater chains into one company that would dominate the industry.

The stock swap and cash deal, valued at about $300 million, would create a combined company called Cineplex International that would operate 519 movie theaters with 2,839 screens, surpassing United Artists as the largest theater chain in North America. After the merger, Cineplex International would build an additional 900 screens, said Howard Lichtman, Cineplex Odeon’s chief spokesman.

The merger agreement marks the end of a long struggle by Cineplex Odeon President and Chief Executive Allen Karp to restructure the Toronto-based company after two of its top executives were ousted in 1989 following an unsuccessful bid to seize control of the then-debt-laden firm.

It also provides the most ambitious example to date of the steady stream of consolidation that is bringing much-needed economies of scale to the industry, analysts said.

Investors applauded the news, sending shares of Cineplex Odeon up 20% to $2.25 a share in New York Stock Exchange trading. Cinemark is not publicly traded.

“We are bringing together two of the most dynamic and complementary companies in our industry to create a formidable force with synergies enjoyed by no other organization in our business,” said Karp, who would be CEO of the combined company.

Cineplex Odeon and Cinemark USA--No. 2 and No. 6 in the North American theater industry, respectively--are a good match in many ways, analysts said. Cineplex Odeon theaters, known for their plush and upscale atmosphere, are concentrated in metropolitan markets such as Los Angeles, New York and Chicago. Theaters in the Dallas-based Cinemark chain are in secondary and suburban markets.

Cineplex Odeon shows first-run features, while approximately 30% of Cinemark movie houses are second-run theaters that typically show mainstream features a few months after their release.

Such diversification would help the combined company, said Dennis McAlpine, a media and entertainment analyst with Josephthal, Lyon & Ross in New York. Traffic for first-run movies is down 10% so far this year compared to 1994, while business at second-run theaters has climbed 18%, he said.

The deal would also give the new company more clout with movie distributors, allowing it to save money by negotiating better rates for film rentals, said Jeffrey Logsdon, an entertainment analyst with Seidler Cos. in Los Angeles. That should strengthen Cineplex Odeon’s balance sheet by reducing its overall debt, he and other analysts said.

The merger would also allow Cineplex Odeon to move into expanding Latin American markets. Cinemark operates four theaters in Mexico and one in Chile. Of the 900 theaters the new company plans to build, 190 of them would be in Latin America, Cinemark spokesman Randy Hester said.

“Not only will we have an international presence, but also a foundation for global growth,” said Lee Roy Mitchell, founder and chief executive of Cinemark USA, who would oversee the new company’s expansion as its chairman.

Analysts said the merger would bring to a close a shaky era for Cineplex Odeon.

“One of the things Cineplex Odeon has done extremely well is dramatically pare down overhead, from in the $30-million-plus range to about half that with more theaters,” analyst Logsdon said.

“This is really the culmination of four years of restructuring,” said Christopher Dixon, an analyst with PaineWebber in New York. “This company was at the verge of bankruptcy three years ago, and it’s clawed its way back.”

Despite the growth of home entertainment and the impending arrival of 500 cable channels and movies-on-demand, analysts say investing in movie theaters is still a safe bet.

“Over the last 12 years, we’ve added home video--which has become a $14-billion business--and we’ve added cable--which is a $25-billion business--and attendance is unchanged at movie theaters,” Logsdon said. Annual attendance has stayed at about 1.2 billion since 1990, Dixon said.

Cineplex said it expects the agreement to be completed this summer after Cineplex and Cinemark shareholders approve the merger. Under terms of the agreement, Cineplex Odeon would issue 104 million shares to holders of Cinemark stock. Upon completion of the deal, Cineplex International would pay $50 million in cash to Cinemark investors and issue another $15 million in promissory notes.