Chinese billionaire Wang Jianlin was on the verge last year of becoming the entertainment industry’s newest mogul, snapping up prime media assets and setting his sights on a major Hollywood studio.
But that breakthrough now seems remote with the $US13 billion sale of assets by Mr Wang’s majority-owned company Dalian Wanda Group to Sunac China Holdings.
Buried in the fine print of filings related to the asset sale is the disclosure that Mr Wang is unloading his nascent sound-stage business, known as Wanda Studios. The 30 film and TV sound stages are part of the Qingdao Movie Metropolis entertainment complex Mr Wang was building in the seaside city of Qingdao.
Once billed as a $US7.4 billion project with production facilities, a studio tour, outdoor theme park, yacht club and hotels, the Qingdao Movie Metropolis was the focal point of Mr Wang’s filmmaking ambitions.
In 2013, he flew Hollywood luminaries including Leonardo DiCaprio, Nicole Kidman and John Travolta to Qingdao for a red-carpet launch event and vowed to make China the global centre of filmmaking.
Since then, however, the studio tour and theme park have been scrapped, plans for an international film festival intended to draw attention to the complex have stalled, and its original director has left.
Most of the Movie Metropolis sound stages are in use mainly by Chinese film and TV production crews lured by rich incentives of up to 40 per cent off production costs, according to a producer currently shooting there. Under the terms of the sale to Sunac, Wanda will retain a 9 per cent stake and a management role in them. Still, for Mr Wang it marks the surrender of a prize.
A Sunac spokeswoman confirmed it would acquire the sound stages, identified as a “television industry park” in a regulatory filing related to the acquisition. Dalian Wanda Group declined to comment on the sale.
Wanda has shelved plans for further overseas acquisitions following a rebuke from the Chinese government for deals regulators view as overpriced and irrational. China has blocked state-owned banks from financing or refinancing six of Wanda’s pending or completed acquisitions, with the approval of President Xi Jinping.
Dalian Wanda will “respond to the state’s call and has decided to keep its main investment within China,” Chinese financial magazine Caixin quoted Mr Wang as saying last week.
“Looking forward, these recent policy changes will certainly derail many of Wang Jianlin’s ambitions vis-a-vis Hollywood, at least for the short term,” said Michael Berry, a professor of contemporary Chinese culture at University of California, Los Angeles.
Mr Wang was the talk of Hollywood last year after he bought US entertainment company Legendary Entertainment for $US3.5 billion. He entered talks to buy a 49 per cent stake in Viacom’s Paramount Pictures unit and negotiated to acquire Golden Globes producer Dick Clark Productions for $US1 billion. Legendary would help Wanda become “the highest revenue-generating film business in the world,” Mr Wang predicted.
But the prediction hasn’t yet come true. Mr Wang failed to merge Legendary with his other film businesses, and he didn’t get the Paramount stake. Earlier this year, he couldn’t close the Dick Clark deal, largely because of the Chinese government’s tightening of capital outflows.
Regulatory filings related to the Legendary acquisition and a presentation on it that Dalian Wanda made to prospective investors offer a glimpse into a deal that caught the attention of Chinese regulators.
In January 2016, with the ink barely dry on its Legendary purchase, Dalian Wanda pursued an immediate follow-up transaction — seeking $US1.5 billion in financing from investors in China’s public markets to help take its movie businesses public, according to the investor presentation viewed by The Wall Street Journal.
Dalian Wanda planned to merge Legendary with its existing movie-production assets and list the combined entity — called Wanda Pictures — on a Chinese stock exchange, according to the presentation. If the new entity failed to list within one year, Dalian Wanda promised to repay investors with 15 per cent interest, according to the presentation.
To do the listing, Dalian Wanda planned to sell the combined movie-production assets to another one of its entertainment units, Wanda Film Holding, which was already listed on the Shenzhen stock exchange. Such transactions have become common in China with companies seeking higher asset values by tapping demand from retail investors, people familiar with the practice say.
Regulatory filings made by Wanda Film in May 2016 show Legendary’s liabilities exceeded its assets in 2014 and 2015, and that it reported a net loss for both years.
Legendary said in a statement last week it is “well capitalised with liquidity to fund its film and TV slates.”
The filings also show a net book value of $US2 billion for the Wanda Pictures assets. Yet the Wanda Film unit would have paid $US5.6 billion for them, based on their estimated future worth, according to the filings.
Such a lofty valuation would likely draw regulators’ scrutiny, said Marshall Meyer, professor emeritus at the University of Pennsylvania’s Wharton School who studies Chinese companies. “If they see that the overvaluation is going to protect (a company’s) own interests, they are going to put it on ice,” he said.
Wanda Film suspended its planned merger of film assets in August 2016, citing a change in market conditions and “an objective need to run (Legendary) independently for a period of time to prove the stability of its profit forecast,” regulatory filings show.
Christopher Balding, a professor at the HSBC Business School in Shenzhen, said, “Regulators sometimes are heavy-handed, but sometimes they can also smell when something stinks.”
While Chinese regulators never publicly rejected the transaction, they met with the country’s big banks in June and told them Wanda is no longer allowed to inject overseas assets into its listed companies in China.
This month, Wanda Film said it would try to buy media assets again as part of a reorganisation. Legendary won’t be part of that transaction, people familiar with the matter said.
By WAYNE MA
Wall Street Journal