Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Wang Jianlin's quest for domination of the world box office continues, with the Wall Street Journal reporting his Dalian Wanda Group is in talks to buy 49 percent of Paramount Pictures from Viacom just days after another of his companies purchased storied U.K. cinema chain Odeon.

But is the Chinese billionaire getting himself the best deals?

The logic of Wang's thinking is unassailable. Already the leading owner of theaters at home, he's buying makers of films that can be funneled into China's ballooning movie market. Prior to Odeon, Wanda acquired Legendary Entertainment, the studio behind this year's Warcraft movie and the Godzilla franchise. It's also in a battle to buy Carmike Cinemas in the U.S., and already has Australian cinema chain Hoyts along with AMC Entertainment in North America.

Buying into Paramount would give Wang access to a major studio -- something Legendary isn't. And the timing is good considering box-office sales in China are set to overtake those in the U.S.

Combining that firepower with Wanda's almost 2,600 screens in China and plans for the world's biggest production studio could create movie gold. Ticket prices in Asia's largest economy are expected to rise from about 35 yuan ($5.20) as consumers switch to premium experiences such as IMAX and Dolby surround sound. Wanda opened the country's first Dolby cinemas last month and plans to have 100 within five years.

But on pure financial metrics, it looks like Wang may be overpaying.

No Glory
At a $10 billion valuation for 49 percent of Paramount, Wanda will be paying a heady 41 times multiple
Source: Bloomberg Intelligence
Note: Paramount's Ebit figure is derived from a five-year average of $243 million.

At a $10 billion valuation for 49 percent of Paramount, Wang would be paying as much as 41 times the U.S. studio's earnings, Bloomberg Intelligence data show. That's well above the 36 times in Disney's 2006 acquisition of Pixar.

Paramount also isn't the star it once was, especially after flops like Zoolander 2 and Whiskey Tango Foxtrot.

Smash Hit Slide
Paramount ranks fifth in market share of movies at the U.S. box office this year
Source: Box Office Mojo
Note: Buena Vista is a subsidiary of Disney.

On top of that, a 49 percent stake isn't in keeping with Wanda's usual strategy of buying a company whole. With a minority interest, it's unclear whether the Chinese government will see Paramount as locally owned and give Wanda the heft it would need to breach a rule that permits just 34 non-Chinese films a year into the market.

China is also starting to make movies itself that are big hits. Although foreign blockbusters used to dominate, local productions accounted for 73 percent of sales in the first quarter. Having a Chinese owner isn't a guarantee of popularity either. Legendary's Warcraft only made it to number three in China, trailing Disney's Zootopia and home-grown hit The Mermaid.

On balance, it seems like Paramount may hold more misses than hits for Wang. His play for the movie producer might look impressive, but his silver screen ambitions have some holes in them yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net