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Chinese Firm's Deal to Buy AMC may Spur Others

2012-05-22 13:22:47        Chinese Films

Chinese conglomerate Dalian Wanda Group's landmark deal to buy AMC Entertainment Inc. for $2.6 billion could be a catalyst for similar acquisitions of American theater chains and other U.S. entertainment properties, industry analysts said.

The deal announced Sunday — which pairs China's biggest theater operator with the second-largest chain in the U.S. — marks the largest investment to date by a Chinese company in the U.S. entertainment industry. Most of the deal making has been Hollywood companies striking business deals in China.

But Wanda's move to buy AMC could turn the traffic in the other direction, setting the stage for a string of similar moves by other Chinese investors looking to diversify and raise their global profile by scooping up blue-chip American entertainment properties. AMC is owned by Apollo Investment Fund, Carlyle Group and other investors who bought the company in 2004.

Some see parallels with the late 1980s and early 1990s, when Japanese companies acquired a number of prized U.S. assets, including Hollywood studios such as MCA-Universal and Columbia Pictures and crown jewels such as New York's Rockefeller Center and California's Pebble Beach golf course.

"More and more Chinese companies are going to try to come in and buy American businesses, just like Japanese companies did in the 1980s," said Sean Yu, a Los Angeles-based executive director at Morgan Stanley Smith Barney who advises Chinese investors. "They want to increase their prestige and their reputation."

Wanda isn't the first private Chinese company to buy American. Chinese carmaker Geely Holding Group bought Ford Motor Co.'s Volvo subsidiary in 2010 for $1.5 billion. In 2004, Lenovo purchased IBM Corp.'s personal computing unit for $1.25 billion.

"It's all about brand names and status, and AMC is a brand name," said Stanley Rosen, professor of political science at USC and an expert on China. "It gives [Wanda] instant credibility."

Film historian and author Neal Gabler agreed that the Wanda deal could presage another wave of foreign buying in Hollywood.

"I would be almost certain that as the Chinese economy grows, you will see other incursions made into the American entertainment industry," Gabler said. Wanda "may be the first foray, but I guarantee they are not the only ones licking their chops at these American properties."

Some analysts have questioned how the deal benefits Wanda, noting that AMC is a highly leveraged theater circuit. Wanda is assuming $1.9 billion in debt to acquire AMC at a time when theater admissions in the U.S. and Canada have been in a long-term decline.

As for the growing Chinese market, Wanda's ownership of AMC may have no effect on the distribution of American movies in China, where the government maintains tight controls on the number of foreign movies it allows into the country.

"I'm kind of scratching my head on it," said James Marsh, an entertainment industry analyst at Piper Jaffray & Co. "I don't see the strategic synergies of the deal. I think this is more of a vanity purchase than anything else."

By creating the world's largest theater company, however, Wanda could use its size to negotiate favorable terms with major Hollywood studios in the world's two largest film markets.

Wang Jianlin, the billionaire who controls Wanda, told reporters in Beijing on Monday that Wanda would invest as much as $500 million to upgrade operations and reduce debt at the Kansas City, Mo., chain, which has 5,034 screens in 346 multiplex locations in the U.S. and Canada. Wanda will keep AMC's management team in place.

Wanda, based in the northeastern city of Dalian, commanded 13.6% of China's box-office market share last year — good for first place even though it ranks seventh in the number of cinemas (86) and fourth in the number of screens (730, including 288 3-D screens), according to consulting firm Artisan Gateway.

"In terms of quality, I would say they're one of the highest-end chains," Wu Renchu, a Shanghai-based film blogger, said of Wanda.

Wanda entered the cinema business in 2004 when it signed a partnership with Warner Bros. to build dozens of modern multiplexes — a pioneering deal at the time that sparked China's cinema-building boom.

In 2005, Chinese regulators reduced the share foreign companies could own in cinema ventures. Warner decided to leave shortly after.

Since then, Wanda has evolved into China's largest privately owned company, controlling a vast portfolio of luxury hotels, sports stadiums and shopping plazas.

Wanda did not respond to requests for comment but said on its website that the deal received approval in March from China's National Development and Reform Commission. In the U.S., the deal will be subject to approval by the Federal Trade Commission. Although it is not required, Wanda also is seeking approval from the Committee on Foreign Investment in the U.S., a federal interagency committee that reviews national security implications of foreign investments in the U.S.

Since the 2008 financial crisis, Beijing has encouraged Chinese firms to acquire under-valued Western assets as part of the nation's years-old "going out" development strategy.

Culture, especially film, has been cited as a key component to China's ambition to wield more so-called "soft power." The deal for AMC could result in more Chinese movies being screened in the U.S. But Chinese features have done poorly in front of American audiences, in part because of weak distribution.

Feng Pengcheng, a professor at the University of International Business and Economics in Beijing, called the AMC deal impressive.

"This is special because it is going into a cultural industry," Feng said. "This carries more significance because of the huge cultural differences between China" and the West.

Feng cautioned that it would be years before the strategy could be deemed wise.

"It's just an acquisition," Feng said. "It doesn't mean you've succeeded yet."

Source: Los Angeles Times

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