M&A

A cinematic love affair

A Dalian billionaire makes a bold purchase of US cinema giant, AMC

Hero of the big screen: Wang

The first building dedicated to showing movies opened in July 1896 in New Orleans. It was called Vitascope Hall, after Thomas Edison’s Vitascope projectors.

A couple of decades later three brothers had an inkling that motion pictures were the future. The Dubinskys bought their first cinema in Kansas City in 1920. Their heirs would gradually expand this portfolio to 346 theatres and rebrand the company AMC (American Multi-Cinema). With over 5,000 screens, AMC grew into the second biggest cinema chain in the US.

Early this week the firm changed hands – it was announced that AMC was being sold to a Chinese buyer for $2.6 billion in what the Financial Times describes as “an overt symbol of China’s growing purchasing power”.

The Dalian-based Wanda Group – a real estate conglomerate – is already the biggest Chinese cinema owner, earning $282 million in ticket sales last year. But the AMC acquisition will make it the biggest cinema chain in the world.

Few in America will even have heard of Wanda, and, in fact, that is part of the logic behind the deal.

The company’s founder Wang Jianlin has described the purchase as a “huge advertisement” as he seeks to build Wanda’s brand and build a global company that “will last for a century”.

Hubris aside, Wang’s company has been on a major growth spurt. Founded by the former soldier in 1988, its speciality is building shopping malls. It was through these Wanda Plazas that Wang got into cinemas, seeing them as means to drive traffic to the malls. And eager local officials across the country have lined up to ask Wang to build his malls in their cities. He has obliged, and the unlisted firm grow its total assets from Rmb40 billion in 2008 to Rmb220 billion last year.

“In other words,” writes the Economic Information Daily, “within a period of three years Wanda Group’s total assets have grown by 450%.”

But the Economic Information Daily also wonders whether Wang may have bitten off a bit more than he can chew with the AMC buy.

For one thing, it questions how the deal will be financed. Wang doesn’t seem too concerned, following comments last year that Wanda holds “tens of billion of yuan in cash at any time”. Back then, Wang was also confident that sales of his commercial properties would reach Rmb100 billion with a gross margin of 30-40%.

Fair enough, says the newspaper, but what makes less sense is that Wang is buying a money-losing proposition. Last year AMC made a loss of $82.7 million. China Business News is also sceptical, citing an industry insider who says cinema revenues in the US are “almost stagnant” compared to China itself where the box office is growing at 35% per year.

So why expand from a high growth market into a mature one?

Wang has said he likes the locations of the cinemas that AMC owns; he has also said in the past that he wants to export Chinese culture. Owning foreign screens may be a potential way to do so.

And he is definitely thinking big: Wanda has claimed it wants to control 20% of global cinema revenues by 2020.

Another possible motive? An IPO. As a result of tightening measures designed to deflate the real estate market, property developers have been restricted from listing their firms in China. Analysts speculate that Wang might have more chance of spinning off the entertainment assets, providing an alternative route to a local stockmarket IPO.

Certainly Wang’s announcement makes a very public statement about how his fortunes are continuing to prosper. By contrast, the city’s other high-profile tycoon Xu Ming – the owner of Dalian Shide – has been detained for ‘economic crimes’, and is also under investigation for his links to ousted Chongqing boss Bo Xilai (see WiC149).


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