Paramount Stake Sale: China's Tencent and DMG Among Longshot Contenders

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Tencent chairman Ma Huateng and other company executives

Viacom's efforts to sell a stake in the film studio face serious challenges from Sumner Redstone's family.

Viacom CEO Philippe Dauman's campaign to offload a minority stake in Paramount Pictures could be even more in flux than previously reported.

Last week, Viacom was said to be in advanced talks with Chinese conglomerate Dalian Wanda Group, which was looking to buy a 49 percent stake in the studio. The company was seeking a steep $8 billion-$10 billion valuation for the deal, with one other undisclosed suitor in the mix, according to the Wall Street Journal, which was the first to report the news.

But sources in Beijing tell The Hollywood Reporter that at least two other publicly listed Chinese companies are still in contention: internet giant Tencent and DMG.

Tencent's interest in Paramount, which was confirmed by two sources, follows a series of overseas entertainment deals by the Shenzhen-based internet company. Last month, it inked a joint venture agreement with WME-IMG and other backers to create WME-IMG China, a Beijing-based arm of the global talent agency powerhouse. Other recent deals include the acquisition of Finnish game-developer Supercell — maker of Clash of Clans — for $8.3 billion, and an investment in a new television joint venture and production fund with IM Global, recently acquired by Tang Media Partners. 

Viacom declined to confirm or comment on the two companies' bids. 

DMG's pursuit of a stake in Paramount was first reported in March, although whether the Chinese company had been struck from Dauman's list was in question.

"DMG is very much still at the table," said a person briefed on the matter who spoke on the condition of anonymity. Best known in Hollywood as the Chinese co-producer of Marvel/Disney's Iron Man 3, DMG's brand is split between two affiliated companies, one based in Beijing and the other in Los Angeles. The Chinese arm has a market cap of about $4 billion on the Shenzhen stock exchange, and it would be expected to raise debt or partner with China-based private equity to finance a deal.

On Friday, Bloomberg reported that Chinese search giant Baidu had contemplated partnering with DMG on a bid, but the tech company pulled out in May after it became apparent that the Redstone family, Viacom’s controlling shareholders, opposed a sale. While Baidu would have offered additional strategic advantages to both DMG and Paramount, raising other capital for a prestigious entertainment investment isn't thought to be challenging for a company of DMG's profile in China's current investment climate. DMG will next team with James Cameron on the release of a digitally remastered 3D version of Terminator 2: Judgment Day this fall.

Any bid, however, was cast into further doubt Friday when National Amusements — the private theater chain company owned by Redstone and his family, through which the mogul controls Viacom and CBS Corp. — reiterated its opposition to a Paramount sale.

National Amusements (via the Redstones) and Dauman are in a three-state legal battle over the future of Viacom — with the outcome unlikely to be resolved anytime soon. “Any short-term benefits that might result from a Paramount transaction would be outweighed by the severe negative impact on Viacom’s future strategic flexibility to best capitalize on this important asset,” National Amusements said in a Friday statement.

Many in the Chinese industry have noted that Wanda's pursuit of Paramount would seem out of character for the company, even in light of its ongoing acquisition spree abroad (it bought Legendary Entertainment for $3.5 billion in January; and AMC Entertainment, which it controls, announced a pact to buy U.K. cinema chain Odeon & UCI Cinemas Group last week).

"I don't see how a minority stake would make sense for Wanda, especially since they are known for pursuing full control in past acquisitions," said one executive, noting that the leadership battle at Viacom could "pull the deal off the table at any second."

"Perhaps they just want to get a look at Paramount's book," the source added. "Wanda is building something ambitious, and a look under the hood of a Hollywood studio could be quite useful to them."

While a minority stake wouldn't give a Chinese suitor control of Paramount's valuable real estate holdings — something that would normally interest a company like Wanda — access to the studio's back catalog for licensing and Chinese remakes could be a potent asset in China's growing, content-hungry entertainment market.

In Wanda's case, some insiders have also quietly questioned whether the company's bid would face anti-trust problems among U.S. regulators, given its majority control of AMC, North America's second-largest theater chain and the Supreme Court's landmark 1948 ruling in United States v. Paramount Pictures, which prohibits movie studios from simultaneously owning major theater chains. 

"As I understand it, a small stake might have been possible, but the 49 percent stake that's being discussed now would definitely face an anti-trust challenge," said another Chinese executive who asked not to be named because of dealings with Wanda.

Then again, perhaps Wanda is interested in an uncharacteristic minority stake in Paramount precisely because the conglom's lawyers have determined that a majority stake would never pass muster with U.S. regulators, but a minority holding might squeak through. Either way, the road to Hollywood from China is looking more litigious than ever.

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