posted 05-08-2012 12:06 PM                    

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AMC Said to Be Talking to Chinese Buyer
By MICHAEL CIEPLY and BROOKS BARNES
Published: May 7, 2012

LOS ANGELES — AMC Entertainment, which owns the second-largest movie theater chain in North America, is in talks to sell the company or a significant stake in it to the Wanda Group, one of China’s largest theater owners, according to people briefed on the discussions.
John Minchillo/Associated Press

The Loews AMC Theater on 34th Street in Manhattan in March. AMC is the second-largest theater chain in America.

If completed, the deal will begin a new phase in China’s push into the global film industry by sharply increasing its leverage with Hollywood and creating the first theater chain to have a commanding presence in the world’s two largest movie markets.

The people who described the discussions spoke on condition of anonymity because the talks are private and not finished. The off-and-on negotiations, they said, began more than a year ago, then became more serious in recent weeks, as AMC scrapped plans for a stock offering that would have raised as much as $450 million.

AMC has been owned since 2004 by an investment group that includes the Apollo Investment Fund, J. P. Morgan Partners, Bain Capital Investors, the Carlyle Group and others. Apollo and its founder, Leon D. Black, also had a major stake in the chain before it was sold eight years ago for about $1.7 billion to a group in which Apollo and J. P. Morgan are the largest holders, with about 39 percent each.

Neither Gerardo I. Lopez, AMC’s chief, nor a company spokesman responded to queries. A spokesman for Apollo declined to comment. A representative for Wanda in China was not immediately available.

Any deal, whether for the entire company or for a major stake, would probably put a current value of roughly $1.5 billion on AMC. That figure is based on its reported cash flow of about $181 million for the 52 weeks ended Sept. 29 and an industry expectation that theater chains in the United States will continue to sell for as much as eight times their annual cash flow.

For AMC’s investors, a recent spike in ticket sales may present an opportunity to cash out an investment that has been in place longer than is usual for hedge-fund money and to invest in businesses with more growth potential.

Wanda’s interest in AMC comes as China has been rushing headlong into new business alliances with American movie companies, as it seeks to double the contribution to its economy from entertainment and media in the next five years.

Wanda, a conglomerate whose interests include commercial properties, luxury hotels and department stores, is involved with film production and distribution in China. It operates a rapidly growing theater chain that now has 86 multiplex locations, and a total of 730 screens, including 47 large-format Imax screens.

On its Web site, Wanda says it accounts for about 15 percent of China’s movie ticket sales, which were about $2.1 billion last year. Wanda has said that by 2015 it plans to more than double its screen count to about 2,000.

Founded in 1920 by three brothers with a single Missouri theater, AMC, based in Kansas City, later was a leader in building complexes to show more than one movie at a time. It now operates about 350 theaters with 5,050 screens. (The biggest theater chain is Regal Entertainment, which has 522 theaters with 6,580 screens.) AMC is known for having better locations than some of its rivals, which include Cinemark, the third-largest chain. Six of last year’s 10 top-grossing theaters belonged to AMC.

In the United States, the major movie studios are largely barred from owning theaters under federal consent decrees that long ago broke up an integrated system under which the majors were able to produce, distribute and exhibit their own films.

After the breakup, theater chains became the direct customer for studio movies. The theaters sell tickets to those movies, splitting the proceeds with the distributor under deals that are often fiercely negotiated.

Last year, however, AMC expanded into movie acquisition. It joined with Regal to form Open Road Films, which buys and distributes the kind of midbudget pictures that studios have started to neglect in favor of megabudget film franchises. Open Road releases have included “The Grey,” an action drama starring Liam Neeson that took in $51.6 million earlier this year.

AMC and the other big theater chains are experiencing an upswing because of blockbusters like “The Hunger Games” and “The Avengers,” which took in $207.4 million over the weekend to set an opening record. Ticket sales in North America for the year to date total $3.6 billion, a 16 percent increase from the same period a year ago, according to analysts. Attendance is up 18 percent to about 456 million.

But the last few years have been extremely difficult for theater operators. Last year, attendance in North America fell to 1.28 billion, a 4 percent decline from 2010 and the lowest total in 16 years. Ticket revenue for last year totaled $10.2 billion, a 3 percent decrease.

Chinese theatergoers have shown a taste for effects-laden American fantasies and action films like “Avatar” and “Mission: Impossible — Ghost Protocol.”

On the flip side, Chinese-made films have made little impression in the North American market, which remains five times the size of China’s, though people briefed on the current deal say Wanda’s ownership of theaters here might create a pipeline for Chinese films in the United States.

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posted 05-08-2012 02:02 PM                       

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The people who described the discussions spoke on condition of anonymity because the talks are private and not finished.

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posted 05-20-2012 10:26 PM                    

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About $2B in the purchase price comes from Wanda’s assumption of AMC’s debt, I’m told. The deal is expected to close in a few months after it’s approved by anti-trust officials and the federal Committee on Foreign Investment in the United States. In the meantime, AMC will keep alive its application at the SEC to go public — even though the company has done little to move it along. Wanda sees its acquisition of AMC as an opportunity to secure a foothold in the U.S., learn industry best practices, and strengthen its relationship with IMAX. The deal calls for AMC management to remain in charge of the U.S. operation at the company headquarters in Kansas City. Wanda’s deep pockets also should enable debt-laden AMC to make needed renovations, and possibly give it the ability to acquire theaters.

Here’s the announcement:


BEIJING, China and KANSAS CITY, Mo., May 20, 2012 — Dalian Wanda Group Co., Ltd. (“Wanda”), a leading Chinese private conglomerate and China’s largest investor in cultural and entertainment activities, and AMC Entertainment Holdings, Inc. (“AMC”), a preeminent U.S. movie exhibitor, today announced that they have signed an agreement under which Wanda will acquire AMC, creating the world’s largest cinema owner. The transaction is valued at approximately US$2.6 billion.

Wang Jianlin, Chairman and President of Wanda, said, “This acquisition will help make Wanda a truly global cinema owner, with theatres and technology that enhance the movie-going experience for audiences in the world’s two largest movie markets. Wanda has a deep commitment to investing in the entertainment business and is already the largest in this sector in China, with more than US$1.6 billion invested in cultural and entertainment activities since 2005. We share with AMC a passion for the growth of the worldwide movie industry. We look forward to partnering with AMC’s management team and employees to build on the many strengths of the company.”

Gerry Lopez, Chief Executive Officer and President of AMC, said, “As the film and exhibition business continues its global expansion, the time has never been more opportune to welcome the enthusiastic support of our new owners. Wanda and AMC are both dedicated to providing our customers with a premier entertainment experience and state-of-the-art amenities and share corporate cultures focused on strategic growth and innovation. With Wanda as its partner, AMC will continue to seek out new ways to expand and invest in the movie-going experience.”

As part of the transaction, Wanda intends to invest up to an additional US$500 million in AMC over time to fund AMC’s strategic and operating initiatives. Wanda has reached an agreement to secure the employment of AMC’s management team. AMC currently has approximately 18,500 employees. The transaction is not expected to have an impact on employee levels at AMC. AMC’s headquarters will remain in the Kansas City metropolitan area and day-to-day operations, including the process for film programming, will remain unchanged.

Wanda is a private conglomerate operating solely in China, with US$16.7 billion in annual revenue and US$35 billion in assets, that focuses on five major areas, including commercial properties, luxury hotels, tourism investment, department stores and cultural businesses. Its portfolio includes 86 theatres and a total of 730 screens as well as large-scale stage show, film production and distribution, entertainment chains and Chinese calligraphy and painting collections.

AMC operates 346 multiplex theatres mostly located in major metropolitan markets in North America, and a total of 5,034 screens, including 2,336 3-D screens and 128 IMAX screens, making it the world’s largest operator of IMAX screens. Approximately 200 million people watched movies in AMC theatres in 2011. Privately held AMC’s ownership group includes Apollo Global Management, Bain Capital, the Carlyle Group, CCMP Capital Advisors and Spectrum Equity Investors. Upon closing of the transaction, AMC will become a wholly owned subsidiary of Wanda.

Wanda has provided to AMC financing commitments to fully finance the transaction. The consummation of the transaction is subject to customary closing conditions and the receipt of U.S. and China regulatory approvals.

In connection with this transaction, Ernst & Young LLP has served as advisor and Davis, Polk & Wardwell LLP has served as legal counsel to Wanda; Citigroup Global Markets Inc. has served as financial advisor and Weil, Gotshal & Manges LLP has served as legal counsel to AMC.

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posted 05-22-2012 02:28 PM                   

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HEADLINE: Chinese firm's deal to buy AMC may spur others

SUB headline: Dalian Wanda Group's agreement to pay $2.6 billion for cinema chain AMC could draw more Chinese investors to U.S. entertainment properties.

By Richard Verrier and David Pierson, Los Angeles Times, May 22, 2012

Chinese conglomerate Dalian Wanda Group's landmark deal to buy AMC Entertainment Inc. for $2.6 billion could be a catalyst for similar acquisitions of American theater chains and other U.S. entertainment properties, industry analysts said.

The deal announced Sunday — which pairs China's biggest theater operator with the second-largest chain in the U.S. — marks the largest investment to date by a Chinese company in the U.S. entertainment industry. Most of the deal making has been Hollywood companies striking business deals in China.

But Wanda's move to buy AMC could turn the traffic in the other direction, setting the stage for a string of similar moves by other Chinese investors looking to diversify and raise their global profile by scooping up blue-chip American entertainment properties. AMC is owned by Apollo Investment Fund, Carlyle Group and other investors who bought the company in 2004.

Some see parallels with the late 1980s and early 1990s, when Japanese companies acquired a number of prized U.S. assets, including Hollywood studios such as MCA-Universal and Columbia Pictures and crown jewels such as New York's Rockefeller Center and California's Pebble Beach golf course.

"More and more Chinese companies are going to try to come in and buy American businesses, just like Japanese companies did in the 1980s," said Sean Yu, a Los Angeles-based executive director at Morgan Stanley Smith Barney who advises Chinese investors. "They want to increase their prestige and their reputation."

Wanda isn't the first private Chinese company to buy American. Chinese carmaker Geely Holding Group bought Ford Motor Co.'s Volvo subsidiary in 2010 for $1.5 billion. In 2004, Lenovo purchased IBM Corp.'s personal computing unit for $1.25 billion.

"It's all about brand names and status, and AMC is a brand name," said Stanley Rosen, professor of political science at USC and an expert on China. "It gives [Wanda] instant credibility."

Film historian and author Neal Gabler agreed that the Wanda deal could presage another wave of foreign buying in Hollywood.

"I would be almost certain that as the Chinese economy grows, you will see other incursions made into the American entertainment industry," Gabler said. Wanda "may be the first foray, but I guarantee they are not the only ones licking their chops at these American properties."

Some analysts have questioned how the deal benefits Wanda, noting that AMC is a highly leveraged theater circuit. Wanda is assuming $1.9 billion in debt to acquire AMC at a time when theater admissions in the U.S. and Canada have been in a long-term decline.

As for the growing Chinese market, Wanda's ownership of AMC may have no effect on the distribution of American movies in China, where the government maintains tight controls on the number of foreign movies it allows into the country.

"I'm kind of scratching my head on it," said James Marsh, an entertainment industry analyst at Piper Jaffray & Co. "I don't see the strategic synergies of the deal. I think this is more of a vanity purchase than anything else."

By creating the world's largest theater company, however, Wanda could use its size to negotiate favorable terms with major Hollywood studios in the world's two largest film markets.

Wang Jianlin, the billionaire who controls Wanda, told reporters in Beijing on Monday that Wanda would invest as much as $500 million to upgrade operations and reduce debt at the Kansas City, Mo., chain, which has 5,034 screens in 346 multiplex locations in the U.S. and Canada. Wanda will keep AMC's management team in place.

Wanda, based in the northeastern city of Dalian, commanded 13.6% of China's box-office market share last year — good for first place even though it ranks seventh in the number of cinemas (86) and fourth in the number of screens (730, including 288 3-D screens), according to consulting firm Artisan Gateway.

"In terms of quality, I would say they're one of the highest-end chains," Wu Renchu, a Shanghai-based film blogger, said of Wanda.

Wanda entered the cinema business in 2004 when it signed a partnership with Warner Bros. to build dozens of modern multiplexes — a pioneering deal at the time that sparked China's cinema-building boom.

In 2005, Chinese regulators reduced the share foreign companies could own in cinema ventures. Warner decided to leave shortly after.

Since then, Wanda has evolved into China's largest privately owned company, controlling a vast portfolio of luxury hotels, sports stadiums and shopping plazas.

Wanda did not respond to requests for comment but said on its website that the deal received approval in March from China's National Development and Reform Commission. In the U.S., the deal will be subject to approval by the Federal Trade Commission. Although it is not required, Wanda also is seeking approval from the Committee on Foreign Investment in the U.S., a federal interagency committee that reviews national security implications of foreign investments in the U.S.

Since the 2008 financial crisis, Beijing has encouraged Chinese firms to acquire under-valued Western assets as part of the nation's years-old "going out" development strategy.

Culture, especially film, has been cited as a key component to China's ambition to wield more so-called "soft power." The deal for AMC could result in more Chinese movies being screened in the U.S. But Chinese features have done poorly in front of American audiences, in part because of weak distribution.

Feng Pengcheng, a professor at the University of International Business and Economics in Beijing, called the AMC deal impressive.

"This is special because it is going into a cultural industry," Feng said. "This carries more significance because of the huge cultural differences between China" and the West.

Feng cautioned that it would be years before the strategy could be deemed wise.

"It's just an acquisition," Feng said. "It doesn't mean you've succeeded yet."

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