Wanda To List AMC Amid Sputtering IPOs
In a somewhat ironic development, the latest application for a New York IPO by a Chinese firm is coming from one of the biggest US theater chains, AMC Entertainment, which was purchased by Chinese real estate giant Wanda Group last year for $2.6 billion. I’m calling the move ironic because most China watchers have been waiting for more than a year for the resumption of IPOs by Chinese firms in New York, following a 2 year winter that saw only a handful of companies list due to frigid investor sentiment. This latest development by Wanda and AMC may show that it’s still too early to say the recent IPO winter has finally ended, since AMC is really a US-based asset despite its Chinese ownership.
This new development is most interesting because it means we may soon get to see how much Wanda overpaid or underpaid for AMC, which it bought last year in a landmark deal as part of its aspirations to become a global movie theater operator. (previous post) AMC generates lots of money, with revenue from continuing operations coming in at $2.7 billion last year. But in a sign of how competitive the industry is, it posted a profit of only $41 million for the year, equating to just 1.5 percent of its revenue.
Wanda committed to a major upgrade of AMC’s theaters as part of its purchase of the company, and I suspect money from this proposed IPO would be used partly to pay for those upgrades. In its initial IPO filing, Wanda says it wants to raise up to $400 million in the offering. (English article) It declined to say what stake of the company would be sold, and added that the $400 million figure was preliminary and could change depending on demand and other factors. AMC tried twice before to go public since 2007, but ultimately scrapped both bids.
So will this new offer finally succeed, and what will it show about Wanda’s purchase price and the broader state of Chinese IPOs in New York? I suspect that AMC will finally become a publicly traded company after this new attempt, not so much because investors will suddenly become interested in the company but because Wanda wants it to happen. Wanda currently doesn’t have any major publicly traded entities for its movie theater business, and most likely wants to use AMC as a listed vehicle for its global theater operations.
In answer to the second question about valuation, I suspect we’ll see that Wanda overpaid quite a bit for AMC if and when the IPO goes forward. As I’ve said above, AMC generates huge revenues through its chain of 343 theaters with nearly 5,000 screens, most of those in the US. But the business is highly competitive, resulting in thin profits even in the best of times and losses when times aren’t so good. Perhaps the listed company will get a valuation of up to $2 billion, but I wouldn’t be surprised if it’s even lower, showing that Wanda paid a big premium for the asset.
As to the bigger picture for New York IPOs by Chinese firms, this new offering shows that such listings could remain a tough sell to US investors through the end of the year. AMC may be Chinese owned, but it’s a well-known name to US investors and hardly the same as an unfamiliar Chinese Internet start-up. Making matters worse, investors don’t appear too excited in stock of Chinese firms based on a recent sell-off of shares of e-commerce firm LightInTheBox (NYSE: LITB), the only major Chinese company to list in the US so far this year. (previous post) All that said, we can probably expect a weak showing for new Chinese IPOs in New York for the rest of this year, with 3 or companies or less making successful new listings.
Bottom line: AMC’s listing plan will show that Wanda overpaid for the for the US theater chain, and reflects continuing weak sentiment for Chinese IPOs in the US.
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