PVR Cinemas has decided to terminate its agreement  to acquire real estate developer DLF's exhibition hall business, DT Cinemas. PVR informed the stock exchanges today that, 'the conditions precedent for the acquisition have still not been satisfied'.

The two companies had sought an extension till February 15 to conclude the deal. "The parties to the acquisition agreement have mutually agreed not to further extend the period for completion of the conditions precedent under the acquisition agreement," said PVR to the Bombay Stock Exchange. Initially, the PVR shares were to be allotted in January.

Nitin Sood, CFO, PVR, said: "We will continue to look at inorganic growth in the domestic multiplex space. DT Cinemas was one such option which we were exploring and, unfortunately, it didn't work out. On the organic front, we intend to open 70 to 80 screens by 2011."

According to industry sources, DLF does not want to sell its theatre business. "DLF has mall properties coming up and they believe they can manage the cinema exhibition business on their own . As a result, they changed their mind," said sources.

In November 2009, PVR had announced a cash-and-stock deal to buy out DT Cinemas. Under the deal, PVR would issue 2.5 million shares to DT Cinemas, representing 10 per cent of PVR's fully diluted paid-up capital. Its market capitalisation at that time was around Rs 322 crore. In addition, PVR would also pay Rs 20.2 crore for the acquisition, putting the total deal value at roughly Rs 50 crore.

DT Cinemas has a portfolio of 29 screens located in Delhi, Gurgaon and Chandigarh. All the acquired cinemas are on long-term lease in various mall developments owned and operated by the DLF Group. This acquisition would have strengthened PVR's presence in the National Capital Region. PVR currently operates 108 screens and the DT deal would have raised this to 137. Further, under the alliance, PVR would have had exclusive rights to operate as a key anchor multiplex partner in all future mall developments by the DLF Group. DLF had a slew of future mall developments planned in key markets in Delhi,  Mumbai, Chennai, Hyderabad, Noida, Jalandhar and Lucknow.

At the time of the announcement, industry experts had raised questions on whether PVR's revenues wouldn't be cannibalised, since PVR screens are located close to DT screens in many areas. Even without DT Cinemas coming into its kitty,  PVR controls 60-70 per cent of screens in the Gurgaon-Delhi region. The oldest multiplex player, it was ousted from its second position by the INOX-Fame India deal. INOX's acquisition of Fame has increased its screen count to 204 screens, almost double of what PVR operates at the moment.