Seagram-MCA Mega-Deal Clouds Theater Chain Merger

The proposed merger between movie theater giants Cineplex Odeon Corp. and Cinemark USA--which would be the largest combination in movie exhibition history--is on shaky ground. Both companies confirmed on Friday that the deal has been clouded by Seagram Co.’s plan to buy 80% of MCA Inc.

MCA owns 42% of Cineplex, while the Charles R. Bronfman Trust owns 26%. Seagram is controlled by the Bronfman family.

MCA would own 23% of the newly merged company while the Bronfman trust would own nearly 15%. Howard Lichtman, executive vice president of marketing at Cineplex, said that Seagram and MCA executives have been too preoccupied to sort out the Cineplex-Cinemark merger.

A letter of intent about the deal expires on May 31, and both companies said they will decide before then whether to resume efforts to consummate the deal. The stock and cash merger had a value of $300 million when it was announced in early March.

Word has circulated among film exhibitors in recent weeks that the deal might be in trouble because of worse-than-expected financial results from both firms. Litchtman denied that the deal was threatened by such issues.

Both companies have been hurt by the overall softness in the movie exhibition business during the first quarter, when there was a dearth of strong movies at the box office. Cineplex exhibits movies on a first-run basis, while about one-third of Cinemark’s theaters are second-run houses where movies are shown months after debut.

In addition, Cinemark, which has some screens in Mexico, is said to have been hurt by the sudden plunge in the value of the peso.

Toronto-based Cineplex Odeon is the second-largest exhibitor in North America with 1,618 screens, while Dallas-based Cinemark is the nation’s sixth-largest chain with 1,234 screens.