Quickie marriage ends in divorce

By Aimee McClinchy

Friday 14th July 2000

SEPARATION BLUES: Jumping the gun will cost Village Force and Hoyts dearly

The merger between cinema players Village Force and Hoyts is off and the case is being seen as a move by the Commerce Commission to flex its muscle in preparation for tightened competition law.

The movie chains jumped the gun, consummating their marriage before receiving a blessing from the commission; now they are to divorce at great cost.

In an unusual move they might be forced to pay costs to the commission to cover the expense of its effort to take them to court.

The two cinema chains did not apply for permission for the transaction but simply went ahead and merged their operations, computer systems and brand names last year.

Now in the face of a commission court case they have backed off and settled out of court and are starting to separate their assets again.

Sources said they attempted to get around the commission's court action by proposing a lesser "backdoor" merger which would have seen them staying in the same building and sharing some resources but split in name.

But the commission would not have a bar of it and now, after the two have agreed to split, it is believed to be haggling over whether to charge the companies costs and penalties as part of the settlement.

It would see the commission exert its right under s47 and s83 of the Commerce Act 1986 and would be seen as a stand against parties that do not apply for authorisation.

Both Village Force chief executive Joe Moodabe and the commission's chief business acquisitions investigator, John Preston, said at this stage they could not comment on the situation. Mr Preston said issues were still being resolved between the parties. The government recently said it would strengthen the commission's power to fine to bring the commission in line with its counterpart in Australia.

Meanwhile, the logistics of splitting up are not simple. Hoyts, which had moved its head office operations into Village Force's building in inner-city Auckland, is preparing to move its staff back out again.

The two will also have to disconnect their computer systems. Hoyts is now working on Village's ticketing system and database and sharing technical staff.

There were layoffs at the time of the merger and the parties may have to re-hire. They will have to pay out to split up their brand names, which appear on signage, publicity and "corporate movie money" bulk ticket books, valid for the next 12 months.

"Everyone is saying it is a year's worth of work down the drain," said one insider, who believed the two would still co-operate where they could.

Motion Picture Distributors Association president Robert Crockett said the association did not want to comment on the merger. But in his role as general manager of Buena Vista International he said his company would be pleased to see the merger not proceed. "We've always thought the market and consumers would benefit from competition."

Force Corporation sold its cinema business into the three-way joint venture company last year a 25% stake valued at $19 million. Force recorded a writedown of goodwill relating to the same transaction of $16.2 million and costs of $250,000.

After this reorganisation it announced its merger with Ihug, which tipped Force's share price to a high of $1.03 and down to 0.45c after the merger was thwarted.

Yesterday Force, said to be scouting the market for a new partner, was trading at 0.38c.

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