China’s largest entertainment group agreed to buy AMC Entertainment Holdings Inc. (AMC) for $2.6 billion including debt, expanding into the U.S. to create the world’s biggest cinema owner.
The deal by Dalian Wanda Group, controlled by billionaire real-estate developer Wang Jianlin, marks the largest-ever buyout of a U.S. company by a Chinese firm, according to data compiled by Bloomberg. Wanda, based in Dalian, northeast China, is also looking to buy a European cinema operator, Wang said in an interview via a translator today.
The purchase, which includes about $2 billion in assumed debt, gives Wanda the second-largest operator in North America, where moviegoers spent $10.2 billion on tickets last year. Kansas City, Missouri-based AMC, controlled by private-equity firms including Apollo Global Management LLC (APO) and Bain Capital LLC, will gain an additional $500 million investment from Wanda over time, the companies said.
“The acquisition will help Wanda’s overseas expansion,” said Ronald Wan, managing director at China Merchants Securities in Hong Kong. “Movie theaters aren’t politically sensitive assets, so this deal probably won’t encounter as much regulatory oversight as others.”
The companies declined to specify how much AMC’s owners will receive from the transaction.
Wanda plans to spend the $500 million to reduce debt and improve AMC’s theaters, Gerardo Lopez, chief executive officer of the U.S. company, said in an interview. Those include upgrades to show Imax and 3-D movies, and adding more bars and dining options, he said.
AMC’s new owners may start shopping for smaller acquisitions in the U.S., putting the company in competition with Regal Entertainment Group (RGC) and Cinemark Holdings Inc. (CNK), U.S. chains that have said they are interested in buying smaller companies, said Eric Wold, a San Francisco-based analyst for B. Riley & Co.
The deal may also strengthen the new company’s hand in negotiating with Mississauga, Ontario-based Imax, Wold said.
The companies don’t expect significant U.S. regulatory obstacles to approving the transaction, Lopez said. They plan to make a voluntary filing with the U.S. Committee on Foreign Investment, a Treasury-led group of government agencies that weighs the national security aspects of takeovers, he said.
It’s too early to talk about whether Wanda will combine the U.S. and European cinema businesses or list them, the company said in an e-mail after the interview with Wang.
Imax Corp. (IMX), the maker of big-screen viewing systems, rose 2.5 percent to $21.46 at the close in New York and has gained 17 percent this year. RealD Inc. (RLD), the biggest supplier of 3-D projection equipment, gained 2.4 percent to $11.23 and has increased 41 percent this year.
The $2.6 billion acquisition surpasses Lenovo Group Ltd.’s $1.8 billion takeover of International Business Machines Corp.’s personal-computer business in 2005, data compiled by Bloomberg show.
Separately, Alibaba Group Holding Ltd., China’s largest e-commerce provider, agreed to buy a stake of about 20 percent in itself from U.S. Web portal Yahoo! Inc. (YHOO) for about $7.1 billion, the companies said today. Yahoo acquired about a 40 percent stake in Alibaba in 2005 in exchange for $1 billion and ownership of the U.S. company’s Chinese operations.
Yahoo intends to return “substantially all” of the cash proceeds, after taxes, to shareholders, the Sunnyvale, California-based company said.
Wanda is one of China’s largest real-estate companies, with interests in luxury hotels and department stores. It is China’s largest cinema operator, with 86 locations, according to its website.
Adding AMC’s 346 locations, mostly in the U.S., would make Wanda the largest operator by revenue, surpassing Knoxville, Tennessee-based Regal, which had $2.7 billion of sales in the year ended Dec. 29, 2011, according to regulatory filings. AMC had about $2.5 billion in the year ended March 31, 2011, regulatory filings show.
Chinese box-office sales increased 35 percent to $2 billion last year, according to the Motion Picture Association of America, making the nation the third-biggest market after the U.S. and Japan. In the first quarter, China surpassed Japan on a trailing 12-month basis and is now the second-largest market, Lopez said, citing MPAA data.
Apollo and JPMorgan Chase & Co. (JPM)’s buyout unit agreed to buy AMC in 2004 for about $2 billion including debt. They agreed a year later to merge the business with Loews Cineplex Entertainment Corp., owned by Bain Capital, Carlyle Group LP (CG), and Spectrum Equity Investors, leaving the combined company owned jointly by the five firms.
AMC withdrew plans for an initial public offering in 2008, and filed a second time, in July 2010, seeking to raise as much as $450 million.
AMC has been in intermittent discussions with Wanda since shortly after the 2010 IPO filing, Lopez said. The U.S. company also held discussions with other buyers, including private-equity firms.
Film-industry ties between the U.S. and China have strengthened this year, after China agreed to provide greater access to U.S. studios, and Walt Disney Co. (DIS), DreamWorks Animation SKG Inc. (DWA), and News Corp. (NWSA) formed co-production partnerships that will include some of their biggest movies.
Disney, the world’s largest entertainment company, in April agreed to develop animation content with Tencent Holdings Ltd. (700), China’s biggest Internet company. The Burbank, California-based company will co-produce “Iron Man 3” from its Marvel unit with Beijing-based DMG Entertainment.
DreamWorks Animation, based in Glendale, California, and run by CEO Jeffrey Katzenberg, said in February it will form Oriental DreamWorks, a Shanghai-based joint venture to develop entertainment projects in China that will include theme parks and live productions. Rupert Murdoch’s News Corp., owner of 20th Century Fox, this month bought a stake in Beijing-based Bona Film Group Ltd. (BONA), a movie producer and distributor.
Ernst & Young LLP is providing financial advice to Wanda on the transaction, and AMC is using Citigroup Inc. (C) Davis Polk & Wardwell LLP and Weil Gotshal & Manges LLP served as legal advisers for Wanda and AMC, respectively.
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