Zena Olijnyk
Financial Post
Business tycoon Gerald Schwartz has mapped out a plan to buy half the theatres owned by Canada's financially troubled Cineplex-Odeon in an attempt to expand a chain of cinemas he already controls, industry sources say.

However, he may face opposition from Allan Karp, the chief executive of Cineplex-Odeon, who is understood to be putting together his own management buy-out plan for the theatre chain.

In addition, John Bailey, the head of Famous Players Cinemas, said yesterday his company would also be interested in picking up a "handful" of Cineplex theatres, under "the right circumstances."

The interest in Cineplex-Odeon comes as its U.S. parent company, Loews Cineplex Entertainment Corp., faces a severe financial crunch, which could force it to restructure under bankruptcy protection. Observers have suggested the Canadian theatres could be sold off piecemeal.

One industry source, who did not want to be named, said Mr. Schwartz -- now embroiled in a battle to purchase bookseller Chapters Inc. and merge it with the Indigo book chain run by his wife Heather Reisman -- has had an enduring interest in the movie theatre business.

"It would make sense that he's looking at this situation to see what he can do," the source said. He added the troubles of Cineplex and its parent, Loews-Cineplex, make it an appropriate time to put together a plan for picking up the best pieces of the chain.

The source said Mr. Schwartz's interest in Cineplex would be for between 40 to 50 theatres, mainly in smaller communities. This is about half the 100 or so Cineplex theatres across Canada.

The cinemas would fit in with a small chain of theatres run by Galaxy Entertainment Inc., a company in which Mr. Schwartz has a 50% interest. (Famous Players has a 20% interest in the chain, while Alliance-Atlantis Corp. and Galaxy management each hold about10%).

The source said Famous Players would take another 12 theatres, mainly in larger urban markets, to fill in those zones where it doesn't already have a presence. Mr. Bailey of Famous Players would not comment on specifics.

Under this scenario, the remaining Cineplex theatres, mostly those that are performing poorly, would be closed. There is increased speculation this could be done through bankruptcy or a reorganization under bankruptcy protection. But at this juncture, most industry watchers said it is unclear what Loews will do.

"I've heard they could file for Chapter 11 in the U.S., or just file for bankruptcy in Canada with Cineplex-Odeon," said another source.

During the 1990s, movie exhibitors built too many megaplex theatres without closing smaller, non-profitable cinemas. At the same time, box office revenue has grown to more than US$7.6- billion in North America, but much of this is because of increases in ticket prices. Attendance at movies has actually been dropping.

Mr. Karp is on vacation and could not be reached for comment. But several sources in the industry suggest he is working on a management buyout. "But I don't know where he'd get the money to do that," said a industry source.

Mr. Schwartz also could not be reached for comment.

But industry sources have indicated Mr. Schwartz has long had an interest in the entertainment business. On separate occasions, he has attempted to buy Famous Players (owned by Viacom Corp.) and Cineplex-Odeon. Eventually, he invested in Galaxy, which operates 80 screens in 11 theatres in Ontario, Alberta and Quebec.

One industry player said from Galaxy's point of view, it would make sense to expand by adding the Cineplex theatres, especially if it can pick Cineplex's best-performing cinemas while passing on the rest.

This could be made even easier should Loews-Cineplex be able to file for bankruptcy or bankruptcy protection under the Companies' Creditors Arrangement Act, a fate that many are predicting could come any time.

Under either scenario, Cineplex could break the leases on the unwanted properties, paying the landlords some amount of compensation for each dollar they are owed.

zolijnyk@nationalpost

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