A Chinese manufacturing company’s $350 million acquisition of Voltage Pictures has short-circuited.
China’s Anhui Xinke New Materials, a provincial copper processing firm, surprised the industry in November with plans to buy an 80 percent stake in Midnight Investments, owner of Voltage, the studio behind Kathryn Bigelow’s best-picture Oscar winner The Hurt Locker.
But in a statement to the Shanghai Stock Exchange on Wednesday, the firm said it had aborted the deal because Midnight Investments had failed to supply necessary documentation required by regulators.
The deal was cast in doubt in early December, when Chinese regulators announced in a statement that they were monitoring a pattern of “irrational” overseas investments in several sectors, particularly film, real estate and sports. In an effort to stem capital flight, which was seen as contributing to a devaluation of the renminbi (China’s currency), regulators signaled that stricter oversight was coming.
According to a leaked draft of the new rules, Chinese officials said they would scrutinize purchases of more than $1 billion if they were outside the investor’s core business area. But insiders say deals well below that threshold are receiving additional, rigorous review.
Regulators’ concerns are understood to be two-fold: that some companies and individuals are disguising capital flight as foreign investments and that others are using high-profile sports and entertainment purchases — particularly trendy sectors among Chinese investors right now — as a short-term strategy to boost stock prices.
Xinke said that it received an inquiry from the Shanghai Stock Exchange regarding Voltage, and that the U.S. acquisition target did not cooperate with the request. “We have commissioned other agencies to communicate with the trading party (Midnight Investments) via email and other means,” Xinke said. “But we still haven’t received the required documents, which has caused us to delay replying to the Shanghai Stock Exchange on three occasions.”
The Chinese firm added: “[Midnight Investments’] lack of positive cooperation with us has caused major uncertainty, so we decided to terminate the deal.”
The Hollywood Reporter reached out to Voltage on Tuesday but received no response.
Xinke has tried to make the case to Chinese media that entertainment is an existing part of its core business, since it bought a TV station in the Chinese city of Xi’an last year. In September, the manufacturer launched a subsidiary in Beijing, Wotaiji Film and TV Media, with $14.4 million (100 million RMB) in capital. The startup vehicle was the planned acquirer of Voltage.
Chinese industry insiders were skeptical of the deal from the beginning, however, both because of its rich $350 million price tag — all cash — and because Xinke is an unknown name to much of the Chinese film and TV community.
The high price — and how the metals company planned to pay for it — also may have been a sticking point for regulators. According to stock exchange filings, Xinke made a profit of just $10.6 million (74 million RMB) last year.
Founded by producer Nicolas Chartier in 2005, Voltage Pictures began as a foreign sales outfit before venturing into production with The Hurt Locker in 2008. The company has since produced over 150 films — mostly mid-budget projects in the $15 million-$40 million range — including Dallas Buyers Club (2013) and the forthcoming horror flick Keep Watching, starring Bella Thorne.
It appears Xinke isn’t giving up on its efforts to deepen its holdings in the entertainment sector just yet, however. In a separate statement to the Shanghai exchange on Wednesday, Xinke said it had reached a deal to acquire a 29.9 percent stake in Hong Kong-based Pegasus Entertainment for $25 million (HK$194 million). Founded by veteran Hong Kong producer Raymond Wong, Pegasus’ recent productions include Ip Man 3, starring Donnie Yen ($124 million in China), and Chinese action-comedy Bounty Hunters ($31 million), both released this year.