Cineworld Braced For OFT Verdict Into Takeover

Cineworld, Britain's biggest cinema operator, is braced for regulators to open a full competition inquiry into its £47m takeover of the country's leading art-house chain.

I understand the Office of Fair Trading (OFT) will say as early as tomorrow that it has reached a verdict on Cineworld's purchase of City Screen Group, which trades as Picturehouse from 21 sites around the UK.

Insiders said on Monday that Cineworld was braced for the OFT to refer the deal to the Competition Commission over concerns that it would diminish competition in the industry, although analysts said that it could avoid such an inquiry by offering to sell a number of Picturehouse sites.

A full competition referral would be a blow to Cineworld, which had pledged to retain Picturehouse as a separate business entity within the group and which would continue to be run by Lyn Goleby, the chain's founder.

Cineworld scotched industry suggestions today that Ms Goleby was on the verge of resigning.

People close to the situation said that Cineworld could yet avoid a reference to the Competition Commission, but described such a scenario as "unlikely".

Cineworld, which operates 80 multiplexes, unveiled bumper profits of more than £35m for last year, buoyed by an unexpected boost in consumer spending on items such as popcorn and drinks.

Britain's cinema industry is dominated by three major groups.

The Odeon and UCI chains are owned by Terra Firma Capital Partners, the private equity vehicle of Guy Hands, the financier best-known for his turbulent and unsuccessful ownership of EMI, the British music group.

Vue Entertainment is also owned by a private equity firm, Doughty Hanson, which has begun discussions with banks about a potential sale of the company.

Some customers of Picturehouse cinemas had expressed concern that the venues' character would be undermined by their ownership by a larger cinema operator.

Like another recent consumer industries deal, however - the takeover of the Giraffe restaurant chain by Tesco - the new parent has pledged to keep its new subsidiary operating as an independent entity.

"The opportunity to be part of a public company is great news for Picturehouse and our customers," Ms Goleby said when the deal was announced in December.

"We are known for our high quality city centre cinemas and our distinctive, wide-ranging programming.

"The unique character of Picturehouse cinemas will remain and our team will continue to bring the widest range of film to customers. This acquisition by Cineworld will accelerate the development of further Picturehouse cinemas around the country."

Cineworld was founded by Stephen Wiener, who founded the business in 1995 and owns a substantial stake in the company.

Cineworld and the OFT, which has a deadline to report back on the deal of later this week, both declined to comment.