Korean cinema chain foregoes IPO plans due to COVID-19

Megabox JoongAng Co., the third-largest cinema chain in South Korea, will forego plans to go public owing to the global coronavirus crisis that has devastated the film industry.

Due to the company's canceled initial public offering, Megabox's financial investors KB Asset Management and Shinhan BNP Paribas Asset Management Company will be collecting their investments three years after they first purchased a stake in the cinema chain.

Megabox's biggest shareholder Jcontentree Corp. will buy a 17.28% stake held by KB and Shinhan for 125 billion won ($111.2 million) in cash to mitigate financial risk, according to the company's regulatory filing on Nov. 5.

This will bump up Jcontentree's shareholding in Megabox from 73.54% to 90.82%.

Jcontentree became the biggest shareholder of the cinema chain in 2011 when it merged its movie theater chain Cinus with Megabox, at the time held by Korea Multiplex Investment Corporation (KMIC), a consortium led by Macquarie Funds.

In 2017, Jcontentree sold a 19.5% stake in Megabox to KB and Shinhan for 110 billion won. At the time, Jcontentree promised financial investors that they could exit by May 2021 through Megabox's initial public offering. 

A drag and call clause was included in the shareholder’s agreement, which would allow investors to sell their shareholdings, including Jcontentree's shares, if Megabox is not listed at a certain offering price. It also enables Jcontentree to purchase shares held by financial investors at a pre-determined price.

It became nearly impossible for Megabox to push forward with its IPO plans due to a number of theaters shutting down given the drastic decline in moviegoers. The domestic movie industry saw the number of moviegoers drop 70% between January and June this year compared to the same period last year. 

This prompted Jcontentree to exercise its call option and purchase financial investors' shareholdings in Megabox. The transaction is an effort to mitigate financial risk by terminating the shareholder's agreement alongside boosting Jcontentree's management rights in Megabox.

Write to Jun-ho Cha at chacha@hankyung.com
Danbee Lee edited this article.