When the 3D film Avatar hit China, 2,000 people braved temperatures of -10C to queue for tickets. The Chinese like movies. And if you are a local cinema owner in search of a little glitter, where else are you going to look for it except in the homeland of Hollywood? Especially if you are planning an initial public offering.
That is the logic behind Monday’s announcement that Dalian Wanda, the largest owner of cinemas in China, is buying AMC Entertainment, the U.S. cinema operator, for $2.6-billion, including debt.
Wanda is expanding its cinema network at home to tap the 30 per cent annual growth in China’s $2-billion of cinema box office revenues. So it has much to learn from the U.S. - the world’s biggest cinema market with annual box-office sales five times bigger than China’s. By keeping AMC’s management in place Wanda should gain knowhow.
And the deal will not do any harm in the run-up to the pending A-share listing of Wanda’s cinema unit in Shanghai.
Meanwhile, Kansas-based AMC needs capital to refurbish existing cinemas and expand. Its revenues grew just 2 per cent over the past three quarters, half the rate of U.S. box-office sales growth over the year. It also made net losses of $83-million. Wanda says it will invest $500-million on expansion and technology, which should secure its strategic position. But this is not yet a done deal.
The U.S. has rejected direct Chinese investment in the past - think Cnooc-Unocal and Huawei-3 Leaf, though it is unlikely to consider cinema as a strategic industry. But regulatory approval is also required on the Chinese side. Wang Jianlin, chairman of Wanda and China’s seventh richest man, is a contentious figure. Details of how Wanda intends to fund the deal remain elusive. The deal makes strategic sense for both parties. But a Hollywood ending is not certain.Report Typo/Error
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