LEISURE: Jin Jiang Courts Accor, SMG Eyes Imagine Entertainment
Bottom line: Jin Jiang’s Accor investment reflects its global aspirations and could result in a strategic partnership, while SMG’s new Imagine Entertainment investment reflects its increasing focus on film production.
Two major overseas investments are in the headlines from the leisure and entertainment sector, with hotel operator Jin Jiang (HKEx: 2006; Shanghai: 600754) and Shanghai Media Group (SMG) making major purchases in Europe and the US, respectively. The first deal has the acquisitive Jin Jiang boosting its stake in Accor (Paris: AC) to 11.7 percent, making it the French hotel giant’s second largest shareholder. The second has SMG’s China Media Capital (CMC) unit signing on as one of several new investors in Imagine Entertainment, the Hollywood production company co-founded by director Ron Howard.
Both stories reflect China’s recent drive to form global tie-ups in the leisure and entertainment sectors, as companies try to capitalize on the nation’s booming domestic market and also a growing flood of Chinese tourists traveling overseas. Jin Jiang has been China’s most acquisitive hotel company, while CMC has also been very active in forming tie-ups and investing with big names both at home and abroad. Perhaps it’s no coincidence that both of these companies are based in my adopted hometown of Shanghai, which is also China’s commercial capital.
Let’s begin with the Jin Jiang news, which comes just a month after the company first purchased 5.5 percent of Accor, operator of the upscale Novotel and Sofitel hotel brands. Now media are saying Jin Jiang has just doubled that stake to 11.7 percent. (English article; Chinese article) They add that Jin Jiang may now seek representation on Accor’s board, implying the former may have purchased its shares in the open market without the latter’s knowledge.
No financial terms were given in the report. But assuming Jin Jiang purchased the stake at Accor’s current market value of about 9 billion euros ($10 billion), its latest investment would have cost $620 million and its total Accor stake would now be worth about $1.2 billion. This investment would be Jin Jiang’s second major European purchase in a year, following its acquisition last year of Louvre Hotels Group for up to 1.2 billion euros.
This new tie-up surprised me a bit because Accor already has a major existing alliance with China Lodging Group (Nasdaq: HTHT), operator of the Hanting brand and one of China’s top private operators. Thus this new alliance puts Accor in the strange position of having major partnerships with 2 of China’s leading hotel operators. But as I’ve said already, Jin Jiang’s stake purchase may have been in the open market without Accor’s knowledge, and it could soon push the French operator to form a new alliance.
CMC in Hollywood
Next let’s look at the latest move for CMC, which has formed a dizzying series of new tie-ups under the leadership of former SMG chief Li Ruigang. According to the latest reports, CMC is actually just one of several companies investing in Imagine Entertainment, in a funding round reportedly worth about $100 million being led by Raine Group, a merchant bank. (English article; Chinese article)
In addition to CMC and Raine Group, others investing in the round included global advertising giant WPP (London: WPP) and the Antenna Group. Thus it’s probably safe to say CMC’s contribution was relatively modest, perhaps in the $10-$20 million range.
This would be just the latest in an accelerating series of investments by CMC under Li. The company formed a film production tie-up with Warner Bros (NYSE: TWX) last year, and has various other projects and investments with the likes of DreamWorks Animation (NYSE: DWA) and Twenty-First Century Fox (Nasdaq: FOX).
CMC and SMG appear to be positioning themselves as a major owner and producer of filmed content, even though they were traditionally the main TV broadcaster in China’s commercial capital. The company has tried to build up a national online video presence through some its existing assets, but so far hasn’t had much success. These new tie-ups seem to indicate that SMG’s focus may increasingly move to film production, and that perhaps the company may eventually abandon its broadcasting and distribution businesses where competition is intense.
