Two major Canadian movie theatre chains are uniting as Cineplex Galaxy LP said Monday it will buy Famous Players from Viacom Inc. for $500 million.

Famous Players operates 81 theatres across the country with 787 screens. The chain runs the Coliseum, Colossus, Paramount and SilverCity brands.

Based in Toronto, Cineplex operates or has interests in 86 theatres with 775 screens in six provinces under the Cineplex Odeon and Galaxy brands.

Under an agreement with the federal Commissioner of Competition, Cineplex Galaxy will have to sell off 35 theatres with annual box office revenues of $100 million to complete the deal.

Cineplex has agreed to sell theatres in Victoria, Vancouver, Calgary, Edmonton, Lethbridge, Saskatoon, Winnipeg, London, St. Catharines, Kitchener, Hamilton, Kingston, Ottawa, Toronto, Gatineau, Montreal and Quebec City.

"Given the degree of concentration in the industry and the barriers to entry into the market, it is essential that these theatres be sold off to ensure that this merger does not result in a substantial prevention or lessening of competition," said Gaston Jorre, the senior deputy commissioner of competition.

Cineplex's takeover of Famous Players is expected to close during the third quarter.

Cineplex, which is majority owned by Onex Corp., said it will finance its takeover of Famous Players with debt and equity.

"Working in conjunction with Onex Corporation, our largest unit-holder and controlling partner, we are bringing together two great companies and are creating an exceptional opportunity to build value through an improved cost structure and expanded product offerings," said Ellis Jacob, the president and CEO of Cineplex.

Last year, Famous Players had revenue of $520 million while Cineplex had revenue of $354 million.

Cineplex Galaxy Income Fund (TSX:CGX.un) owns 42 per cent of Cineplex Galaxy LP. Units of the fund gained 44 cents to close at $14.64 on the TSX. Shares of Onex Corp. slipped 10 cents to end at $19.05.