Chinese internet giants Alibaba and Tencent have teamed up with a group of investors to take Bona Film Group private in a deal valuing the first US-listed Chinese film company at about $1 billion.
Hong Kong-listed Alibaba Pictures, a wholly owned unit of Alibaba, said late on Tuesday that it will invest $86 million in Bona Film and own about 10% of the firm following the buyout. Rival Tencent, acting through subsidiary Willow Investment, has yet to disclose the scale of its investment.
Alibaba and Tencent join the consortium of investors that in June offered $13.70 for each of Bona Film's 's American depositary shares, including Bona Film founder and chairman Yu Dong, Fosun International, and Sequoia Capital. The offer represents a 6.5% premium to Bona Film’s closing share price on June 11, before the take-private proposal was announced.
Beijing-headquartered Bona Film, which listed on Nasdaq in 2010, runs an integrated film business that encompasses film production, distribution, and advertising, and operates about 22 cinemas in China. Its proposed buyout is the latest in a string of privatisations by US-listed Chinese companies seeking a return home.
“What made up my mind to return to the A-share market was the [success] of The Taking of Tiger Mountain film. It achieved impressive box office results but our stock kept falling on Nasdaq. It really upset me,” Bona Film founder Yu told Chinese media on the sidelines of the 18th Shanghai International Film Festival in mid June.
Released by Bona Film late last December, the action-adventure blockbuster generated about Rmb880 million ($136 million) from box office receipts, making it one of the highest-grossing films in China (including imported films). The film, based on the well-known Chinese novel Tracks in the Snowy Forest, topped the domestic box-office rankings for about three weeks during the new year season, the busiest time for Chinese cinemas.
The company’s box-office success, however, failed to boost its share price, which dropped about 10% over the same period.
Bona Film, which has also financed Hollywood blockbusters such as The Martian, X-Men: Apocalypse, and War of the Planet of the Apes, is suffering from a relatively low market valuation, much like other US-listed Chinese firms. Its market capitalisation of Rmb5.5 billion is dwarfed by those of A-share peers Huayi Brothers Media Corporation and Beijing Enlight Media Corporation, which stand at Rmb56 billion and Rmb48 billion, respectively.
According to Dealogic, 27 US-listed Chinese firms have announced plans to de-list their shares this year in deals worth a total of $33.5 billion, in the hope of achieving higher valuations and trading volumes. In 2014, only one Chinese company went private in a deal worth $660 million.
Chinese film boom
Bona Film’s planned homecoming comes at a time when the Chinese film sector is booming and attracting the attention of the country's internet giants.
Analysts at Nomura estimate that China will overtake North America in 2017 as the world’s largest movie market by box-office income and expect sales to reach Rmb100 billion in 2020. Data from the State Administration of Press, Publication, Radio, Film, and Television for the year to December 3 shows sales at a record Rmb40 billion in 2015, a 48% improvement on the same period last year.
“The movie industry is growing very rapidly in China. It is an affordable consumption in spite of the economic slowdown. A movie ticket only costs [on average] Rmb36. It might be even cheaper than going to Starbucks in China,” Richard Huang, China gaming, lodging and leisure research analyst at Nomura, told FinanceAsia.
The Bona Film investment is not the first time Alibaba and Tencent have collaborated in this sector. They also joined forces with PingAn Asset Management and China Securities in August to participate in a Rmb3.6 billion share placement of Huayi Brothers Media Corporation, one of China’s largest film and entertainment groups. Alibaba and Tencent then invested Rmb1.5 billion and Rmb1.2 billion, respectively.
“This could help investors like Alibaba and Tencent to hedge the risk by investing in everyone, as it would be really hard to pick the winner in the sector…The competition is very intense,” Huang said.
The Bona Film deal, which received unanimous board approval, is still subject to shareholder approval and other closing conditions, and is expected to complete in the second quarter next year.