M&A

Closing credits

Wanda drops latest deal; capital controls blamed

Jennifer-Lawrence-w

Wanda loses the Golden Globes

Hollywood is a place where dreams are supposed to come true. But that’s no longer the case, it seems, for one of China’s richest men, Wang Jianlin.

His efforts to scale the heights of the US entertainment industry suffered a setback last Friday after a $1 billion deal to purchase Dick Clark Productions collapsed.

The Hollywood Reporter says Wang’s Wanda Group was forced to relinquish the bid because of Chinese government efforts to rein in capital outflows, and the Financial Times reports that similar constraints may make it impossible for Chinese firms to match last year’s $220 billion of announced outbound M&A deals this year.

Owen Chan from law firm Hogan Lovells says the government is not only “halting live deals” but also “forcing companies to go back and review acquisitions that have already been approved”.

Comments by China’s central bank governor Zhou Xiaochuan imply that Wanda’s bid was less welcome than most. At a press conference last Friday, Zhou told reporters that the government “has encouraged domestic enterprises to acquire foreign companies to improve exports and technological expertise. However, some entertainment and sports club investments aren’t valuable and they’re causing foreign governments concern. These trades aren’t necessary.”

Recent casualties include copper producer Anhui Xinke’s proposed $350 million acquisition of Vintage Pictures, which made The Hurt Locker. The Hollywood Reporter says another $1 billion financing agreement between Shanghai Film Group and Huahua Media with Paramount Pictures is in danger too.

US newspapers claim that Wanda’s original bid for Dick Clark was unsolicited and accepted only when Wang made owner Todd Boehly an offer he couldn’t refuse. According to The Wrap, industry players regarded the acquisition as “wildly overvalued”. Boehly’s former employer, Guggenheim Partners, had purchased Dick Clark and a number of other brands including The Hollywood Reporter and Billboard magazine for $370 million in 2012. They were spun into Boehly’s ownership vehicle in 2015.

But cost has never bothered Wanda before. Last January, it paid $3.5 billion for Jurassic World’s producer Legendary Entertainment. It also spent $2.06 billion on Europe’s Odeon and UCI cinema chains and $1.3 billion on Carmike Cinemas in the US. The latter acquisitions were bolted onto AMC Entertainment, the US cinema chain that Wanda purchased in 2012. They are now the country’s biggest distributor: a fact, which persuaded lobbyist Richard Berman to push for Congressional oversight of Chinese media investment. “The issue of censorship in China isn’t my concern,” he tells The Wrap. “But if you control distribution, you control what the retail market sees.”

In October, the Washington Post also penned an editorial on the differences between Japan’s Sony buying Columbia Pictures in the 1980s and Chinese efforts today. “Japan is a strategic ally of the US and a democracy committed to free expression,” it wrote. “China, by contrast, is adversarial and ruled by a dictator, Mr Xi, who has a declared global propaganda agenda based on the idea that ‘Chinese art will further develop only when we make foreign things serve China’.”

Dick Clark is very much a cultural icon in the US. It produces the Golden Globes and the New Year show beamed live each year from Times Square ever since the American Bandstand host set the company up in 1957 at the beginning of the rock n roll era.

Will Wanda be back? Wang has said he wants to buy a ‘big six’ Hollywood studio. But it is looking increasingly unlikely, especially as the US-China Economic Security Commission recently recommended that Congress change legislation governing foreign investment to cover all industries, including media.

Some Chinese companies have set up co-financing deals with Hollywood studios, which don’t involve equity investment (Wanda has one with Sony Pictures). But this cross-cultural partnership isn’t generating the box office returns the American studios were hoping for. And as the Hollywood Reporter says, “China’s government doesn’t want more American films; it wants more and better films back home.”


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