ENTERTAINMENT: Wanda Eyes Hollywood Studio, HK IPO Stumbles
Bottom line: Wanda chief Wang Jianlin could purchase a controlling stake in MGM as he looks to take over a Hollywood studio, while his Wanda Dalian property IPO will get a tepid reception but perform well over the longer term.
Property magnate Wang Jianlin is used to getting what he wants, but 2 new headlines indicate his Wanda Group may have to settle for compromise in a pair of its latest forays, one involving a Hong Kong IPO and the other involving his desire to purchase a major Hollywood studio. The former headline has Wang reportedly scaling back plans for a mega IPO in Hong Kong for Dalian Wanda, his group’s flagship property arm. The second and more intriguing news item has him seeking to buy a controlling stake in a major Hollywood studio, with Lions Gate (NYSE: LGF) and MGM mentioned as 2 possible candidates.
Let’s begin our Wanda round-up with the Hollywood moves, since the IPO is a more evolving story that I’ve written about previously. (previous post) According to the latest headlines, Wang has become the latest of China’s richest men to come calling on Hollywood, following a similar visit in October by Alibaba (NYSE: BABA) founder Jack Ma and a visit earlier this year by Baidu (Nasdaq: BIDU) chief Robin Li. (previous posts)
But whereas Ma and Li were interested in buying minority stakes in production companies and individual film projects, Wang says he’s looking for a controlling stake in a major production house, or potentially an outright acquisition, according to the reports. (English article) This kind of strategy is certainly consistent with Wang’s early approach a couple of years ago when he purchased AMC Entertainment (NYSE: AMC), the second largest US movie theater operator.
But according to the reports, which cite Wang, Lions Gate’s owners were only interested in selling a minority stake in the company. The same reports say that Wang has also held discussions about investing in Metro-Goldwyn-Mayer (MGM), which owns rights to the “James Bond” movie franchise. There’s no detail on those talks, but presumably Wang would also like to buy a controlling stake in the legendary studio.
If that’s the case and MGM was interested in such a deal, I would offer the following advice to Wang: Don’t do it. MGM has been one of the most problematic of the major Hollywood studios over the last 2 decades, going in and out of bankruptcy several times, including as recently as 2010. More broadly speaking, I would strongly advise Wang not to take control of any studio, but rather to buy a strategic stake.
His current approach appears to mimic a similar one by Japanese companies when they purchased 2 major studios in the 1980s, with both deals ultimately causing major headaches for their foreign buyers. But Wang is someone who is used to being in control, which means he may not settle for a minority stake and won’t stop until he finds someone who will give him the control he seeks.
Next let’s look briefly at the latest reports on Wang’s upcoming IPO for his Dalian Wanda property arm, which reportedly has gotten the official green light from Hong Kong securities regulators after a hearing earlier this week. (English article) This deal has been in the headlines for the last month, and probably the most significant thing in this latest news besides the regulatory approval is a big reduction in the fund-raising target.
Wang had previously sought to raise up to $6 billion from the deal, which would have made it the biggest Hong Kong IPO in the last several years. But now he’s reduced that target to $4 billion. Investors had reservations about China’s real estate market, which has sputtered in the last few months, prompting many local governments to relax some restrictions imposed when it was overheating over the last few years. I can understand the current investor caution, though I do think Dalian Wanda looks like a good bet over the medium to longer-term due to its industry leading position and focus on commercial rather than residential real estate.
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