China's Huayi Brothers to Raise $588M; Tech Giants Alibaba, Tencent to Buy Stake

Huayi Brothers' Wang Zhonglei

After the adjusted share issue plan, Alibaba and Tencent will each hold more than five percent of Huayi

Leading Chinese private film and TV company Huayi Brothers said that it has adjusted its private placement plan to raise up to $588.16 million and has signed a strategic agreement with tech giant Alibaba on e-commerce, online entertainment and movie development.

The Shenzhen stock exchange-listed company has also signed a strategic deal with Tencent, which owns the vastly popular WeChat and QQ messaging services, on online games, online TV and film development.

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Alibaba and Tencent are two of China's largest Internet players, along with Baidu, with the three companies collectively known as "BAT". All have been working to make inroads into the entertainment industry.

Huayi plans to issue 145 million shares in private placement, in which Tencent will buy 51.55 million shares and Alibaba, through Alibaba Venture Capital (AVC), will buy 61.76 million shares.

Alibaba and Huayi will co-produce five films together, and Alibaba will account for between five and 10 percent of total investment in Huayi Brothers' films. Over the next three years, the two companies will collaborate on 10 films to be launched on Alibaba's Yulebao platform, a crowdfunding-like service that lets ordinary Chinese make micro-investments in upcoming movies via their smart phones.

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"After introducing the Alibaba platform, Huayi Brothers entertainment business will have greater growing room," said Huayi CEO Wang Zhongjun.

The investment group Ping'an Capital Management will buy 27.4 million shares of Huayi Brothers, and CITIC Securities will take 4.3 million shares.

After the issue, Jack Ma's firm and Tencent will each hold just over eight percent of Huayi, while Ping'an will own two percent of the company.

Earlier this month, Tencent signed a deal with Warner Music Group to distribute its content in China, opening the doors for legal distribution of music from acts like Linkin Park, Bruno Mars and Michael Buble as well as Mandarin stars Jolin Tsai, JJ Lin and Jam Hsiao.

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Tencent also became the latest Chinese tech firm to enter the film business in September with the launch of a film subsidiary, Tencent Movie Plus. The company will aim to make four or five films a year, local media reported, and the first project it will work on will be Nobel Prize-winner Mo Yan’s novel The Treasure Map, which the company said will be made with input from Hollywood.

Late last month, Huayi Brothers, which is run by Wang Zhongjun and Wang Zhonglei, reported a 10.4 percent rise in net profit in the first three quarters of 2014.

Huayi was also a "major investor" in Brad Pitt and Shia LaBeouf's Fury.

Wang Zhongjun made headlines earlier this month when he bought a Vincent van Gogh masterpiece at Sotheby's in New York for nearly $62 million.

During the first three quarters of the year, the group released six films, including successes such as Feng Xiaogang's Personal Tailor, but it did not have a major blockbuster such as Stephen Chow’s Journey to the West: Conquering the Demons, which earned $201 million in box office last year.

In September, Huayi Brothers announced that it was setting up a $130 million subsidiary in the United States to invest in the distribution and production of movies and TV shows.