INTERNET: Baidu Welcomed in Milan, Rebuffed in Hollywood

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Bottom line: Baidu’s Robin Li could announce a deal later this week to buy 40 percent of soccer club AC Milan, while his company’s pursuit of Paramount was likely killed by internal fighting at the Hollywood studio.

Paramount spurns Baidu, Wanda

Internet search leader Baidu (Nasdaq: BIDU) is in a couple of major entertainment headlines as the new week begins, led by word that it could finally announce a highly anticipated deal that would see it buy a major stake of European football club AC Milan. At the same time, separate new reports are saying that the company was rejected in a recent bid for a strategic stake in Hollywood giant Paramount, the studio arm of Viacom (NYSE: VIAb). Those same reports are saying Wanda Group, another Chinese entertainment aspirant, was also rejected in pursuit of a similar deal.

Each of these deals is quite different, but both reflect a recent drive by Baidu, Wanda and many other major Chinese companies into the entertainment sector. Others moving aggressively into the space include Internet rivals Alibaba (NYSE: BABA) and LeEco (Shenzhen: 300104), as well as more traditional companies like electronics retailer Suning (Shenzhen: 002024).

Let’s begin with the AC Milan deal, which has been rumored for quite a while but could finally be nearing completion. The latest reports are coming from the authoritative CCTV, China’s biggest traditional broadcaster, and say that a group led by Baidu’s chief Robin Li will purchase an unspecified stake in AC Milan for $437 million. (Chinese article)

We should start by pointing out that this news appears to be a passing reference on a CCTV report, rather than an actual story on the deal. The wording used by CCTV is somewhat vague, saying only that there has been “forward progress” on the deal, rather than the deal has been actually completed.

There’s also no word on what exactly the group led by Li will get for its $437 million. It’s noteworthy that the amount is roughly half of the 750 million euro ($825 million) price tag reported just a couple of weeks ago, when media said an unspecified a Chinese group was near a deal to buy 80 percent of AC Milan. (previous post)

Two Buyer Groups?

Thus if all the reports are accurate, it’s possible the group led by Baidu’s Li will only buy about 40 percent of AC Milan rather than the originally reported 80 percent. It’s also possible there could be 2 separate Chinese groups that would each buy 40 percent of the team. Earlier reports had indicated that the chief executives of real estate giant Evergrande (HKEx: 3333) and home appliance maker Midea (Shenzhen: 000333) were also interested in the team. Either way, it does seem like a formal announcement could come soon.

Next there’s the Paramount reports, which reveal that both Wanda and Baidu previously courted the Hollywood giant after Viacom said it might sell a strategic stake in the studio back in February. (previous post) At the time, analysts said a Chinese company could be the most likely partner, since many Hollywood studios have been hungrily eyeing a Chinese box office that is now the world’s second largest.

The latest reports indicate the rejection of both Baidu and Wanda may have little to do with the individual companies, and may be more related to infighting for control of Paramount’s parent company Viacom. (English article; Chinese article) That infighting is mostly between Sumner Redstone, Viacom’s 93-year-old controlling shareholder, who says he’s being excluded from the selection process by people actually running his company.

One slightly surprising detail from the latest reports says that Wanda was apparently looking to buy 49 percent of Paramount, which would have valued the studio at $8-$10 billion. Analysts had previously said Paramount might be looking to sell 5-10 percent of itself, so 49 percent would be quite a bit higher. Those figures also indicate Wanda was prepared to pay up to $5 billion for the stake. That would have been its largest overseas purchase of all time, in a global spree that has seen it buy movie theaters, Hollywood studios and various sports assets over the last 3 years.

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