Dalian Wanda Group, a Chinese conglomerate, has agreed to pay $2.6 billion for AMC Entertainment to create the world’s biggest cinema owner.
The deal is the biggest M&A transaction in the leisure and recreation sector so far this year, and is another indication of closer ties between the US and Chinese movie industries, coming a week after News Corp’s purchase of a 19.9% stake in distributer Bona Film last week.
“A combined AMC-Wanda will create the world’s largest cinema owner and will provide the necessary scale with which to fund and to deploy new technologies such as digital cinema, Imax and 3D so as to provide cinema-goers with an enhanced experience,” said a person familiar with the acquisition.
If completed, the all-cash deal will also be the biggest-ever overseas acquisition by a Chinese private company, exceeding Lenova’s purchase of IBM’s personal computer business in 2005.
The $2.6 billion price tag includes $1.9 billion of debt and $700 million of equity, according to the source. In addition, Wanda will invest a further $500 million to fund AMC’s strategic initiatives, upgrade technology and refurbish theatres.
Wanda has locked in AMC’s management team, and it said in a statement yesterday that the transaction is “not expected to have an impact” on the company’s current employment level of 18,500 staff.
It is hard to see that the deal should disturb political sensitivities, so the acquisition is not expected to meet significant regulatory obstacles and is likely to be approved by the end of the third quarter of this year.
Financing for the purchase is likely to come from Chinese banks, and at least one, Bank of China, is assisting Wanda. Ernst & Young is the company’s main adviser and Citi is advising AMC, propelling the US bank to the top of the M&A league table in Asia ex-Japan, according to Dealogic.
The agreement follows discussions during the past couple of years, after a second filing by AMC for an IPO was shelved in July 2010. AMC had withdrawn plans for an IPO two years earlier, but a future public offering has not been ruled out, said the source.
AMC’s ownership group comprises buy-out firms, Apollo Global Management, Bain Capital, Carlyle, CCMP Capital Advisors (part of J.P. Morgan) and Spectrum Equity Investors, which took joint-ownership in 2005. The return on their investments is unclear.
Wanda is controlled by property-developer Wang Jinalan, and has interests that include commercial real estate, luxury hotels and department stores. Its portfolio contains 86 cinemas showing 730 screens, and the company also produces and distributes films. Wanda claims annual revenues of $16.7 billion and assets worth $35 billion, according to its statement yesterday.
AMC operates 346 multiplex cinemas with more than 5,000 screens across North American cities, ranking it second behind Tennessee-based Regal Entertainment. It is a leading provider of 3-D and IMAX, and claims to run 23 of the 50 highest grossing cinemas in the US. The company posted $2.5 billion in revenues in 2011.
“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,” said Gerry Lopez, CEO and president of AMC in a statement.
China has the third-largest box-office sales in the world, but is closing rapidly on Japan, in second place behind the US.
“Wanda has a deep commitment to investing in the entertainment business and is already the largest in this sector in China,” said Wang Jianlin, chairman and president of Wanda. The company has invested more than $1.6 billion in cultural and entertainment activities since 2005.