How Wanda May Recover After ‘Great Wall’ and Dick Clark Productions

Chinese billionaire Wang Jianlin’s Dalian Wanda Group has hit a rough patch.

After breaking ground on the world’s biggest film studio, assembling the world’s largest movie theater chain and pledging to invest billions more in all six of the major Hollywood studios, China’s richest man now faces an inflection point in his global expansion plans.

Last Friday, Wanda’s latest entertainment mega-deal — a $1 billion takeover of Dick Clark Productions, the TV production company behind the Golden Globes — officially went bust. Dick Clark’s owner Eldridge Industries said in a statement that one of its affiliates “terminated” the deal and had sued to recover half of a $50 million “reverse termination fee” connected to the agreement. (Wanda declined to comment.)

The meltdown follows widespread industry skepticism over the steep $3.5 billion Wanda paid for Legendary Entertainment last year. With the studio’s latest releases (Warcraft, The Great Wall) losing money, Legendary’s founder and CEO Thomas Tull announced in January that he was resigning to “pursue new interests” — although sources at the time said Wanda showed him the door.

The Dick Clark transaction is believed to have been derailed by Beijing’s extensive and ongoing crackdown on overseas investment by Chinese firms. Concerned by the record amounts of capital exiting the country, and the high price and spotty performance of many of the assets acquired, regulators have put a damper on outbound dealmaking.

The same day that the Dick Clark deal was abandoned, China’s top central banker, Zhou Xiaochuan, questioned the strategy behind recent acquisitions. “Some are not in line with our requirements and policies for overseas investment, such as in sports, entertainment and clubs,” he said. “This didn’t bring much benefit to China and caused some complaints overseas.”

“Wanda does take a credibility hit here,” says Stanley Rosen, a professor of political science who specializes in the Chinese film industry. “If they abandoned the deal because they realized late that they were vastly overpaying for the actual assets, as some have suggested, you have to wonder how it got this far and who was advising Wang.”

Allowing observers to assume that the Chinese government was behind the breakdown, meanwhile, presents alternate credibility issues. “Is Wanda really a fully independent company, as Wang always argues, if the Chinese government can step in and veto any deal they make?” Rosen adds.

Still, few believe the setbacks will compel Wang to change course. “Wanda has reached a stretch of the road that’s a little bumpier, but they’re not going to turn back,” says Lindsay Conner, an attorney with Manatt, Phelps & Phillips who has extensive China experience. “They may be selective, but I believe Wanda will continue its strategy of expansion by acquisition.”

“It’s pretty clear that Wanda isn’t going to be able to buy one of the [major U.S.] studios anytime soon,” says an exec working for one of the majors in Beijing, noting the increased hawkishness towards China both in the Trump administration and Congress, as well as the rising protectionism in Beijing. Instead, insiders expect Wanda to focus on expanding Legendary — which recently got some much-needed good news in the strong U.S. and international opening of Kong: Skull Island — and making the $8.2 billion Qingdao studio project a success.

With Wanda not able to pour its capital into Hollywood, Qingdao will become an even more important piece of its overall expansion strategy, but the key will be attracting more Hollywood projects.

“The Dick Clark news won’t affect the progress of the Qingdao studio in any significant way,” says the exec. “Producers will look at the [40 percent] incentive, which is generous, and the studio’s reputation after more projects shoot there.”

Adds Conner, “Wanda has a long-term stake in this business and one project or deal, up or down, will not affect that.”