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China's Wanda strikes $2.6B deal for cinema group AMC

by Andrew Bulkeley | Published May 21, 2012 at 9:22 AM

Chinese real-estate-to-entertainment conglomerate Dalian Wanda Group Corp. Ltd. on Monday, May 21, agreed to buy private equity-backed cinema operator AMC Entertainment Holdings Inc. to become the world's biggest movie theater company. The takeover would be the largest acquisition of a U.S. company by a Chinese group.

Beijing's Wanda would pay $2.6 billion, including the absorption of about $2 billion in liabilities, for Kansas City, Mo.-based AMC. The Chinese company then plans on investing up to another $500 million to upgrade cinemas with bars as well as 3D and Imax Corp. projection equipment.

"This acquisition will help make Wanda a truly global cinema owner, with theaters and technology that enhance the movie-going experience for audiences in the world's two largest movie markets," said Wanda chairman Wang Jianlin in a statement.

It's unclear if the deal projected profits for AMC's financial investor backers.

Apollo Management LP led a $1.14 billion acquisition of AMC alongside Bain Capital LLC, Carlyle Group, CCMP Capital Advisors LLC and Spectrum Equity Investors in 2004. The private equity shops then added Loew's Cineplex Entertainment Corp. in a $4 billion acquisition in 2006 as well as Midwest cinema operator Kerasotes ShowPlace Theaters LLC in 2010 for $275 million.

The investors have tried unsuccessfully to list AMC almost annually since they picked it up but have repeatedly aborted the plans at various stages.

AMC had $2.5 billion in sales in the year ended March 31. It operates 346 cinemas in the U.S. with a total 5,034 screens including 2,336 3-D theatres and 128 Imax screens.

Wanda said it would retain AMC's management, led by president and CEO Gerardo Lopez, and allow the company to operate largely independently.

Wanda said it first began stalking the company, which is a close second to Knoxville, Tenn.-based Regal Entertainment Corp. in the U.S., in early 2010.

The deal will make Wanda the world's biggest movie theater operator, active in two of the three biggest cinema markets -- China, Japan and the U.S. are the world's largest. It already owns 86 theaters with 730 screens.

It's the third sizable acquisition featuring a Chinese buyer this month.

Bright Food (Group) Co. Ltd. on May 3 agreed to buy 60% of the U.K.'s Weetabix Food Co. from Lion Capital LLP for an enterprise value of £1.2 billion ($1.9 billion) and Chinese Internet portal Alibaba Group Holding Ltd. Monday agreed to buy back a 20% stake in itself from Yahoo! Inc. for up to $7.1 billion in cash and stock.

The deal eclipses Lenovo Group Ltd.'s $1.75 billion acquisition of IBM Corp.'s personal computer activities in 2005 as the biggest purchase of a U.S. company by a Chinese rival.

The transaction comes in the month that U.S. and Chinese officials ended the fourth U.S.-China Strategic and Economic Dialogue by giving each other assurances about how each government will vet merger applications from the other country.

The U.S. committed that the Committee on Foreign Investment in the United States, which reviews foreign takeovers of U.S. assets for national security concerns, would apply the same rules and standards to each transaction it reviews without regard to the investor's country of origin -- meaning that purchases in the United States by Chinese companies would not be singled out for special scrutiny.

Previous attempts by Chinese companies to invest in the U.S. that ran into trouble included the 2005 plan by Cnooc Ltd. to pay $18.5 billion in cash for Unocal Corp., which was withdrawn after lawmakers raised energy and security concerns; plans by China's Anshan Iron and Steel Group Corp. last summer to invest in Mississippi-based Steel Development Co., a deal restructured after some lawmakers pressured CFIUS to block it; and Huawei Technologies Co. Ltd.'s 2011 plan to purchase assets from 3Leaf Systems Inc. of Santa Clara, Calif.

Ernst & Young LLP acted as financial adviser to Wanda with Davis, Polk & Wardwell LLP providing counsel. Citigroup Global Markets Inc. was financial adviser to AMC and Weil, Gotshal & Manges LLP its counsel.

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