Why a Hong Kong IPO May Make Sense for STX Entertainment

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Bob Simonds

Bob Simonds' decision to take his studio public in the Asian exchange strikes some as simply a financial play, but others see an overdue opportunity to strengthen ties with China.

With China clamping down on capital flow into Hollywood — and box-office disappointments piling up — Bob Simonds' STX Entertainment Studio is looking to an unconventional IPO in Hong Kong to maintain momentum.

On Sept. 27, The Wall Street Journal reported that STX is planning to raise around $500 million in an initial public offering on the Hong Kong stock exchange in the first quarter of 2018, with a valuation pegged at around $3.5 billion.

Insiders say it's about time that the studio's early private-equity investors, which include TPG Capital and China's Hony Capital, would be pushing for an exit. And with Bad Moms ($184 million worldwide) the sole blockbuster among the studio's 14 releases to date, fundraising can be expected to be a concern for the company.

Launched in 2014, STX, which would not comment to THR for this article, is said to be targeting the Hong Kong exchange to be closer to its many local financial partners, which, along with Hony, include tech giant Tencent and Hong Kong telecom company PCCW, both of which took minority positions in the studio in 2016. But financial insiders say the Los Angeles-based studio's unconventional choice of Hong Kong is likely a matter of necessity as much as preference. "The stock exchanges in New York and mainland China require that a company has cleared certain benchmarks for profitability or growth over a sustained period," says one China-based financial executive. Given the studio's patchy track record and relentless expansion, it's unclear whether STX currently could clear these hurdles.

By contrast, STX's uniqueness in the Hong Kong market — as a Hollywood entertainment company endorsed by some of the region's biggest names — should indeed deliver a higher valuation than could be achieved elsewhere.

The studio became a trailblazer in the Chinese market in 2015, when it signed a landmark, three-year slate financing deal with influential Beijing-based studio Huayi Brothers Media. But two years on, only one film — STX's 14th and most recent title, the action thriller The Foreigner, starring Jackie Chan and Pierce Brosnan — has obtained a release in China, opening to $22 million in the Middle Kingdom (a U.S. release is set for Oct. 13).

Many analysts are optimistic about the company's forthcoming slate, which includes Aaron Sorkin's potential awards contender Molly's Game and a raft of female-led comedies including a Bad Moms sequel and I Feel Pretty with Amy Schumer. None of those titles look particularly China-friendly, however.

"It's possible that the company intends to better leverage its powerful lineup of Chinese partners — which it has always said is part of the strategy," says Stan Rosen, a professor at USC who specializes in the Chinese entertainment industry. "But we have not seen these plans yet."

This story first appeared in the Oct. 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.