Wanda's Hollywood Dream Raises Funds, Hits Resistance

Includes: AMC, CKEC
by: Doug Young

Bottom line: Huge interest in a new mega funding for Wanda Pictures reflects confidence in the company and China's entertainment industry, though Wanda may have to raise its price to complete its proposed US acquisition of Carmike Cinemas (NASDAQ:CKEC).

The hyperactive Wanda Group is in a couple of entertainment headlines as we round out the week, reflecting the company's recent drive to diversify beyond its roots as a real estate company. The larger of the pair has Wanda's recently launched film-making unit raising a cool $2.4 billion in its maiden fund-raising, an impressive figure for a company that has little experience in the area. The second involves an acquisition plan by Wanda's related theater arm, and is seeing the company's plan to buy US chain Carmike Cinemas hit some opposition from shareholders who say the bid is too low.

This pair of stories reflects 2 different themes in China's corporate world over the past year. The first shows how easy it has become for big names like Wanda to raise major new funds, often topping $1 billion, from investors excited about China's fast-growing Internet and entertainment sectors. The second reflects a growing resistance by US shareholders to Chinese acquisitions of New York-listed companies, with many complaining the bids grossly undervalue such companies.

Let's begin with the fund-raising story, which has Wanda beating its earlier target of raising 10 billion yuan ($1.5 billion) for its recently formed Wanda Pictures unit. The reports say Wanda ultimately raised 15.88 billion yuan in the funding, or about $2.4 billion, and that even after raising the amount the deal was still oversubscribed. (English article)

The deal was wrapped up in just one and a half months, which is extremely fast for a fund-raising of this size and such a new company like Wanda Pictures. That testifies to how much confidence people have in Wanda and its founder Wang Jianlin, one of China's richest men, whose recent mega-investments have ranged from sports marketing to theme parks and e-commerce. One of his latest mega-deals saw him propose to buy US movie studio Legendary Entertainment (Private:LENT) for $3.5 billion late last year.

The reports cite an analyst saying that Wanda Pictures may ultimately get purchased by one of the group's publicly listed units, Wanda Cinema Line, operator of China's largest movie theater chain. Perhaps that's why investors are so keen to give their money to Wanda Pictures, since they may be betting that Wanda Cinema Line will pay them a large premium for their shares in a year or two.

Shareholder Rebellion

Wanda's movie theater business was at the center of the second headline, which involves the proposed acquisition of Carmike by larger US rival AMC Entertainment (NYSE:AMC), which is controlled by Wanda. AMC proposed buying Carmike earlier this month for $30 per share, but now some of Carmike's investors are starting to criticize the offer as far too low.

According to the latest reports, Driehaus Capital Management, which owns 7.3 percent of Carmike's shares, has issued a statement saying Carmike should be valued at $43.50 to $47.25 per share. (English article) Driehaus joins Mittleman Bros LLC, another major Carmike investor with a 7.1 percent stake, in criticizing the offer as significantly undervaluing the company.

AMC's original offer of $30 already represented a 20 percent premium to Carmike's previous share price before the original deal was announced. So the price range that Driehaus is now proposing would represent a premium of anywhere from 74 percent to as much as 90 percent from Carmike's price before the bid announcement.

That kind of big premium certainly isn't unheard of, though usually it would involve a high-growth company from the technology or pharmaceutical sectors. Carmike doesn't fit that description, and operates in a very mature industry with limited growth prospects. Thus, it doesn't really seem to justify such a rich premium.

Still, these 2 major shareholders probably realize that Wanda has plenty of cash and isn't afraid to use it, meaning it's quite possible AMC may significantly raise its offer if it wants to close a deal. Then again, Wang Jianlin is quite a savvy businessman, and may simply walk away from this deal, sending Carmike's share price back to its previous low levels.

Disclosure: None