Virgin in £215m deal to sell UK cinema chain to Vivendi

Vivendi, the acquisitive French utilities and entertainment giant, yesterday increased its UK presence following a £215m deal to buy Virgin's chain of cinemas in the UK and Ireland.

Vivendi, the acquisitive French utilities and entertainment giant, yesterday increased its UK presence following a £215m deal to buy Virgin's chain of cinemas in the UK and Ireland.

The 35-strong chain is being bought from the Virgin Entertainment Group by UCG, a leading European cinema group in which Vivendi has a controlling 38 per cent stake.

Virgin Entertainment Group, which is 70 per cent owned by Virgin and 30 per cent owned by venture capitalists, bought the cinema chain from MGM in 1995 for £195m and subsequently sold 90 of the smallest cinemas to Cinven and ABC for £70m. This latest transaction means that it has made a profit of around £90m on its original purchase.

The sale is bound to renew speculation that the Virgin chairman, Richard Branson, needs to raise cash to shore up other parts of his empire, particularly following the decision to abort a £1bn-plus flotation of the airline, Virgin Atlantic.

But a spokesman for Mr Branson insisted it was not a firesale and said the proceeds would be spent expanding other parts of the Virgin Entertainment Group.

This includes its seven Virgin megastores in Asia and its 220-strong chain of Our Price record shops, which are to start selling One2One mobile telephones. There will also be further investment in Virgin's worldwide e-commerce activities.

For Vivendi, the cinema deal will result in a further strengthening of its European media, television and publishing interests. It already owns 25 per cent of BSkyB and 49 per cent of the French pay-TV channel Canal Plus. Through the Havas group it also has interests in several UK design and advertising businesses including Biss Lancaster, Euro RSCG and Conran Design Group.

UGC owns around 400 cinema screens in France, Spain and Belgium. The addition of the Virgin chain will give it a further 300 screens in the UK and Ireland. Previously it had no presence at all in the UK market.

Vivendi's other UK subsidiaries include the two rail franchises, Connex South Eastern and Connex South Central, and the construction company Norwest Holst.

It also owns four water-only companies in the South-east, the largest of which is Three Valleys Water which supplies 2.3 million people in Hertfordshire and north London.

All of the Virgin cinemas will be rebranded under the UCG name. But UCG has agreed a long-term deal for the continued sale of Virgin Cola within the cinemas while a similar supply deal is being negotiated in respect of its existing cinemas on the Continent.

Mr Branson said: "The size of the deal reflects the hard work that has gone into building Virgin Cinemas.

"The management team has put lots of energy into making it a success and I am pleased they will be able to continue to develop the business with UCG to build a European company."

The deal does not include Virgin's cinemas in Japan where the group said it planned to continue expanding operations.