Cannes 2012: E1-Alliance Takeover Talks Stir Speculation at Fest

The deal between Entertainment One and Canadian Alliance Films is expected to be announced before Cannes wraps next week.

As speculation mounts over the imminent sale of indie distribution powerhouse Alliance Films, the possibility Entertainment One might buy up its Canadian rival has the film executives gathered in Cannes buzzing about how a deal would impact both companies and the industry as a whole.

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The word is a shortlist of three serious bidders has been drawn up by the Bank of Montreal for Alliance co-owners Goldman Sachs Capital Partners and minority shareholder Investissement Québec and that news of a preferred suitor could come at any moment. eOne, which scrapped its own sales plans in February before weighing possible acquisition targets, is thought to be leading the pack. The deal is expected to be announced before Cannes wraps next week.

If eOne succeeds in swallowing Alliance, the move will reverberate across the indie film world. Alliance is Canada’s leading indie distributor and has handled huge releases such as The Hunger Games in the territory. It also had distribution operations in the U.K. and Spain. In Canada, eOne is handling the final installment in the Twilight franchise. The rapidly-expanding group also has a distribution footprint in the U.S., the U.K., Belgium and the Netherlands.

Shares in eOne have dipped as rumors of an Alliance deal spread, with investors speculating that the group may have to issue new equity to bankroll the takeover. eOne stock was off 4.4 percent in trading Friday after an 11 percent drop on Thursday.

"The eOne share price fell in on itself when no one wanted to buy it earlier this year so I would hope the mounting speculation that its going to buy Alliance's business will have the opposite effect," said one industry insider in Cannes. "But with the two business sharing so much in the U.K. and Canada there will be cuts coming."

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Many market-goers "can't see the point" for the acquisition with some of the opinion that eOne would bite off more than it can chew through the acquisition.

And with both having sizeable operations in the British capital, the anxiety that consolidation always means job losses, is being talked about.

"The business double up in the strongest parts so there will be good people worried about not being good enough if the sale were to happen," said one company fixer.

But Peel Hunt analyst Patrick Yau was bullish about an eOne deal for Alliance.

"I think the deal would make sense, consolidating the (eOne’s) position in Canada, bringing the Alliance content portfolio into the group and providing further scale to the business. For shareholders, the deal would be earnings enhancing and there would be cost savings that could be made."

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An Alliance Films spokesman said he had no information about a pending sales announcement.  A London-based spokeswoman for Entertainment One said the company never comments on acquisition rumors.   

Stuart Kemp and Georg Szalai contributed to this report.