Will Wanda Group’s Real Estate Challenges Endanger Its Hollywood Buying Spree?
Hollywood’s elite will be all smiles next week when the town’s most prolific dealmaker, Wanda Group CEO Wang Jianlin, visits to talk up the importance of strong U.S. and Chinese relations.
But some execs privately raise an uncomfortable question about the company that owns Legendary Pictures and AMC Entertainment, and openly says it wants to buy a big six studio: Is Wanda reaching the end of its rope financially — or politically?
Jianlin’s company makes most of its money from real estate. And some company watchers say he has bet too heavily on malls in tier-two and tier-three cities in China where local economies have stalled. That could squeeze the company, possibly forcing it to take on too much debt and slow its spending to become a global entertainment megapower.
“He has looming debt issues and he’s trying to do whatever he can to beef up the company,” says one exec who is involved with Chinese companies.
Jianlin– China’s richest person, with a fortune estimated at $32 billion — told CNN last month that Chinese real estate has been buoyed by “the biggest bubble in history” adding that “the problem is the economy hasn’t bottomed out.”
He added, though, that he’s still “waiting for the opportunity” to buy a major Hollywood studio.
Jianlin promised last year that by 2020 Wanda will be a public company worth more than $200 billion with annual revenues of at least $100 billion and net profits of $10 billion or more.
It’s hard for outsiders to determine whether Wanda will have the financial wherewithal to achieve its ambitious goals. Big parts of it are private. And the public operations don’t have to be as transparent as companies that must comply with U.S. accounting rules.
That’s why some Wanda watchers were struck by a series of recent apparent setbacks:
Last month the company paid $4.4 billion to take private its Dalian Wanda Commercial Properties, saying that the shares that began trading in Hong Kong in December 2014 were undervalued. The stock began trading below the initial offering price late last year amid investor concerns about the prospects for Chinese real estate. They stayed there until the go-private offer was made in March. Wanda vowed to take it public again in China in two years.
The Financial Times reported this week that UBS bailed out of the go-private deal, fearing that that Wanda was biting off more than it can chew. (The deal was still completed, and it’s unclear whether UBS quit, or was cut out back in March.)
Wanda Cinema Line — China’s largest exhibition company — in August ditched a plan to pay about $5.6 billion for Wanda Media following its acquisition of Legendary. The publicly traded theater company, whose shares have lost about 45% of their value this year, wants to wait until the studio becomes profitable again.
At the end of July, Wanda closed its 19-month old, $572 million Wanda Movie Park for “renovation and upgrade works to better serve our guests with better quality content, as well as with a brand new experience.” Just 400 visitors attended the day it closed China Daily reports, citing the park’s local paper, the Chutian Metropolis Daily.
In January Wanda delayed the full opening of its Qingdao Oriental Movie Metropolis, an $8.2 billion complex that will include the world’s largest movie studio. It’s now due to open in August 2018, back from the planned April 2017, although parts could become operational earlier.
Some familiar with the company say that any enterprise as vast as Wanda is bound to have some hiccups — and there’s no sign that Wanda’s ready to put its checkbook away.
“They’re buying with cash on the balance sheet,” one says. If Wanda feared it was becoming stretched then it would borrow against assets it already owns — especially at a time when interest rates are low — and “that hasn’t happened yet.”
And Wanda’s entertainment investments barely dent the books of the world’s biggest property owner and developer.
“How much did Facebook pay for WhatsApp? $21 billion on not a lot of free cash flow,” an exec familiar with the company says. “And nobody’s saying, ‘Oh my God, Facebook is running out of money’.”
Hollywood’s paying attention, though, because Wanda’s investments loom so large in the industry.
AMC’s poised to become the world’s largest exhibition chain with a $1.2 billion offer for Carmike Cinemas. (Carmike shareholders are scheduled to vote on it next month.) AMC also can achieve its No. 1 global status when it closes its agreement to pay a similar amount of cash and stock for UK’s Odeon & UCI Cinemas.
Meanwhile, Wanda recently made a co-finance agreement with Sony Pictures, bought a majority stake in consulting firm Omnigon, paid $350 million for Mtime (China’s top movie portal), and is investing $3.3 billion in EuropaCity (a French park, retail, and sports project).
Now Wanda’s checking out Dick Clark Productions, which produces the Golden Globe Awards broadcast. (A deal is said to be likely.), It’s also kicking the tires on other showbiz properties.
If it needed to take on debt, one source says Wanda could pay much of it off by packaging a menagerie of entertainment assets into an entity that it could take public in China or Hong Kong.
Glamorous properties also can indirectly benefit the company’s real estate business — which focuses on building residential and commercial centers for sprawling cities and towns. “Hollywood is the flagpole [Jiamin] plants to get excitement around all these things,” one source says.
He has more latitude than a domestic company would have to mix and match assets.
“They don’t have the anti-trust issues that we have here in the U.S. so they can own production, distribution and exhibition,” says one exec who monitors the company . “It serves their exhibition expansion in China which is what they are doing right now. Politically, they have the full support of the Chinese government.”
The government connection could also make traditional financial considerations beside the point for Jianlin. The deals might benefit Wanda by making it too important to fail.
“There’s no such thing as purely private company in China,” says University of Southern California political science professor Stanley Rosen, a specialist in the country and its entertainment interests.
China is “desperate to improve its image overseas” and Jianlin “is trying to say, ‘I’m the one who is promoting China’s interest in Hollywood and elsewhere. I am promoting Chinese culture’.”
One source observes that the Wanda chief is “trying to get loudest mouthpieces under his control: the Golden Globes or a major studio or film slates or the exhibition business. The things he tends to go after are loud projects. He’s building the tallest tower in Beverly Hills right next to where they have the Globes. Everything is about: ‘Hey, look at me’.”
That could pay off because, Rosen says, in China “you can’t get any deal done there without corruption.”
With Jianlin’s growing clout in showbiz, if something went wrong and officials “thought about arresting him for corruption, they would be sending a wrong message abroad.”
It also would play badly in Hollywood, which Rosen says “is in the business of selling out” and recognizes “there is a lot of money to be made in China.”
He warns, though, that Wanda must “be very careful” with its deals mixing content (Legendary and Sony) with distribution (AMC). “This would be an anti-trust violation if a North American company did this.”
Wanda has to be especially wary now that some in Washington who fear China’s growing influence in Hollywood have put a bulls-eye on the company’s back.
A bipartisan group of 16 members of Congress cited Wanda’s acquisitions in a letter last month asking the Government Accountability Office to investigate national security implications.
One of the signers — House Subcommittee on Commerce, Justice, Science and Related Agencies Chairman John Culberson (R-TX) — also just asked the Justice Department to investigate whether Wanda’s investments run afoul of the Foreign Agents Registration Act (FARA).
Jianlin “does not try to hide his close relationship with the Chinese government,” the lawmaker wrote.
At this point these challenges are just blips on the radar screen, not major business obstacles. Wanda has to take them seriously, though, considering the high stakes.
That’s a lot like the view some Hollywood execs have as they look at the financial and political challenges that face the industry’s most extravagant spender.
As one exec put it, “there are cracks in the armor.”
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