Chinese Investors Unload Stakes in Wanda's Legendary Entertainment
Under the terms of an earlier fundraising agreement and failed merger plan, Wanda was forced to buy back two companies' combined $237 million stake in the troubled Los Angeles studio.
Two Chinese investors have sold their stakes in Legendary Entertainment, the Burbank-based studio owned by billionaire Wang Jianlin's Dalian Wanda Group.
Chinese conglomerate Oceanwide Holdings has sold a $217 million (RMB 1.44 billion) stake in Legendary, while Hangzhou-based production company Zhejiang Huace Film and TV Co. offloaded $20 million (RMB 133.4 million) in holdings, first-half financial reports from the two publicly traded Chinese companies show. Bloomberg was the first to report the sales.
Shortly after Wanda acquired Legendary in a landmark $3.5 billion deal last year, the conglomerate offered Chinese investors a piece of the action in a $1.5 billion fundraise. At the time, Wanda said it intended to merge Legendary with its publicly traded Wanda Cinema Line unit, which was expected to generate a windfall, as Chinese entertainment stocks were then red-hot.
The conglomerate promised investors a 15 percent return if it failed to bring Legendary public within 12 months, according to an offering presentation seen by THR at the time.
But that deadline has since passed, and Wanda is understood to have bought back Oceanwide's and Huace's holdings at a loss (Huace's financial report indicates that it received a 16 percent return on the investment). Insiders say they believe Wanda has been forced to buy back stakes from other investors, too. Although Wanda's 2016 fundraise initially was pegged at $1.5 billion, the company is known to have raised much more. Just weeks after its plans were made public, a vice president at the firm said it had already raised $2.4 billion.
Wanda's merger plans for Legendary were derailed when Chinese regulators upped their scrutiny of such transactions involving publicacly traded companies. Wanda soon withdrew the offer, saying the deal was premature and wouldn't be in the best interest of minority investors. The company said that Legendary needed to show that it could turn a profit on its own before being folded into the listed cinema business. The Hollywood Reporter had reported in May 2016 that Legendary had lost $580 million the year prior.
Wanda's forced investment buyback, while not a surprise, is the latest knock for the Chinese property and entertainment giant, which has been beset by blows to its once expansionist ambitions in the global film sector. Wanda and other acquisitive Chinese conglomerates are under heavy government pressure to reduce their debt loads, and Beijing is known to have instructed state banks to stop lending to Wanda to finance its overseas entertainment acquisitions.
Legendary, which has a pricey film slate underway, including Pacific Rim: Uprising with Universal and other high-risk tentpoles, insists it won't need to rely on its Chinese company as a financial backstop anytime soon, whatever the regulatory issues in Beijing. "Legendary is well capitalized with liquidity to fund its film and TV slates and operate its business as usual," the company said in July, at the peak of Wanda's political predicament.
Meanwhile, one of Wang's top deputies, Zeng Maojun, president of the conglomerate's film division, is known to have been dispatched to Los Angeles this week to meet with Hollywood heavyweights and try to assuage concerns about Wanda's commitment the international entertainment sector over the long term.