South Korean major CJ Entertainment signed a memorandum of understanding today to acquire a stake of up to 35.4% in Plenus Entertainment, the parent company of rival studio Cinema Service.

The linking up of the two firms, which are by far the biggest film companies in Korea, is scheduled to take place mid-March after due diligence is carried out.

CJ Entertainment reportedly intends to acquire a 28.3% stake of 3,837,336 shares which are currently owned by local holding company Locus Holdings (24.2%) and CEO Michael Kim (4.1%).

It has also stated its willingness to acquire an additional 7.1% stake from U.S.-based Warburg Pincus to total 4.8 million shares and a 35.4% stake in the company.

Warburg Pincus currently owns 15.9% of Plenus Entertainment, with 11.3% owned by founder Kang Woo-suk and the remainder publicly owned. Should Warburg Pincus decide to sell, the sale at a proposed price of 14,500 won per share will total $58m (WON 69.6 billion).

Shares in both companies dropped in response to the news, with Plenus Entertainment falling 1,050 to WON 10,700 and CJ Entertainment dropping 500 to WON 9,800.

The proposed merger of the two companies' operations has sent shock waves through the Korean industry, with many expressing concern that the emergence of such a powerful company will have a negative effect on the industry as a whole.

Last year Cinema Service and CJ ranked numbers 1 and 2 respectively in distributor rankings, combining to capture a 61% share of admissions to local films and a 40% share of the market as a whole.