Wanda to Consolidate Chinese Film Assets Through Major Merger

China Power list:  Wang Jianlin Dalian Wanda Group - Getty-H 2016
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Notably, the deal will not include the loss-making U.S. movie studio Legendary Entertainment, which Wanda acquired for $3.5 billion last year.

Chinese billionaire Wang Jianlin, chairman of Dalian Wanda Group, is set to take more of his film industry assets public.

The Chinese conglomerate's publicly traded movie theater business, Wanda Film Holding, asked for a suspension of trading in its shares earlier this week, pending "plans to acquire film-related assets." Those plans were made public Tuesday in a regulatory filing to the Shenzhen Stock Exchange.

According to the statement, Wanda Film Holding is moving to acquire Wanda Film & Television Media, the previously privately held production and distribution arm of Wanda Group. The merger will thus make a large chunk of Wanda's film business operations public for the first time. Wanda Film Holding was known as Wanda Cinema Line prior to a name change in April.

Notably, however, insiders tell THR that the deal will not include U.S. movie studio Legendary Entertainment, which Wanda acquired for $3.5 billion in early 2016.  

Wanda attempted a very similar move less than one year ago. In April of last year, the conglomerate announced that it would merge Legendary and Wanda Media with the same Shenzhen-traded cinema business. But shortly after the announcement, Beijing regulators tightened the rules governing mergers involving publicly traded entities, insisting that private assets needed to prove a track record of profits before they could be brought public through mergers or backdoor listings.

As THR reported exclusively last year, Legendary lost more than $500 million in 2015 and nearly $350 million in 2014. Wanda was forced to call off the merger in August, but Wang insisted that he would make another attempt at a later date. 

The inability to take Legendary public in China was viewed as a major setback for the billionaire and his advisers. From the beginning, many industry observers had argued that $3.5 billion was a wildly high price to pay for Legendary, which owns little high-value franchise IP of its own. The Walt Disney Co., for example, had purchased Lucasfilm, the home of Star Wars, for just $4 billion a few years earlier.

But those closer to the China market understood that the premium was one Wang would probably be happy to pay in order to gain a foothold in Hollywood — assuming he could offset the price tag by taking the studio public in China. Valuations on mainland China's markets are among the world's highest, and the entertainment sector back then was red hot. If anything, Wang might have seen a paper profit. 

But Beijing regulators had grown wary of such arbitrage moves, and Wanda was caught holding the bag. Since then, two of Legendary's top executives — founder Thomas Tull and senior China-based exec Peter Loehr — have left the studio. The company scored a sizable hit in March with Kong Skull Island ($566 million globally), but only after the high-profile embarrassment of The Great Wall. Given the studio's recent track record and lack of veteran industry leadership at the helm, it's hard to see how Beijing regulators would be inclined to revise their position on a Legendary-Wanda Film Holding combination this year.  

Instead, Wanda is moving to bring its Chinese movie assets under one corporate roof. Wanda says trading in Wanda Film Holding will be suspended for no more than one month. The subsidiary's shares are expected to surge once trading resumes. 

It's shaping up to be a busy week in Wanda world. On Monday, the conglomerate revealed a surprising retreat from the theme park sector, selling off most of its mainland parks and hotels to fellow property developer Sunac China in a landmark $9.3 billion deal. The move comes less than a year after Wang promised to build 20 multibillion-dollar theme parks across the Middle Kingdom, boasting that his "wolf pack" of attractions would render Shanghai Disneyland unprofitable in China (for more on Wang's possible motives for the parks sale, see here).