Cinemas could raise £1bn for Terra Firma

Guy Hands's private equity firm Terra Firma is eyeing a potential £1 billion sale of the Odeon and UCI cinema chains, sources yesterday said.

Insiders said that Terra Firma may also choose to refinance Europe's biggest cinema group and has not taken a firm decision to sell the business.

The buy-out house has been talking to Bank of America Merrill Lynch, which would be a logical choice of adviser given its close links to the firm, but sources said it had not awarded the bank a formal mandate.

Commentators have suggested that a sale of the business could raise between 700 million and 1bn.

Terra Firma has been in the spotlight since its 4bn deal to take music business EMI private - done at the height of the buyout boom in 2007 - turned sour.

Battling under the weight of its debt, EMI finally fell into the hands of its lender, Citigroup, in February, wiping out Terra Firma's 1.7bn equity investment in the business.

Since then, Terra Firma has been dipping back into the mergers and acquisitions (M&A) market, eyeing new potential investments. On Thursday, it completed its €641m (565m) deal for Italian solar power generator Rete Rinnovabile.

Ten of Odeon's 204 European cinemas are in Scotland, while its sites in Austria, Germany, Ireland, Italy and Portugal use the UCI brand. The group's cinemas in Spain trade under the Cinesa brand.

Terra Firma received approaches for Odeon last year after rival cinema chain Vue Entertainment was sold to Doughty Hanson. One of those approaches for Odeon came from BC Partners, which had been narrowly pipped in the Vue auction. Vue has been suggested as a potential suitor for Odeon.

Terra Firma and Bank of America declined to comment.

The resurgence in cinema-going has drawn interest in the sector, and the sale of Vue by management and private equity fund Coller Capital attracted strong interest from the private equity industry last year.

Alongside BC Partners, Canadian pension scheme Omers - which recently set up a British office to do direct European buyout deals - was also edged out in the final round of the sale by Doughty Hanson, sources said at the time.

When the company was sold, Vue chief executive Tim Richards said that the cinema industry was about to enter a "second golden age", thanks to the emergence of 3D, which would draw in audiences not just for films but also for live sports, music and theatre.

A tie-up between Odeon and Vue or Cineworld - the UK's second-largest chain, which was until recently backed by Blackstone but is now listed - could present competition issues, analysts have said, and would not be possible without disposals.

Shares in Cineworld - which has seven cinemas in Scotland, including Glasgow's Renfrew Street, the highest-grossing in the British Isles - closed up 1.8 per cent or 3.75p at 211.25p.