China’s regulators announced a major crackdown on cross-border acquisitions Friday, saying that investments in entertainment, sports and hotels would be restricted and putting an official stamp on an informal policy that has caused the firehouse of Chinese money pouring into Hollywood over the last couple years to dry up.
Earlier Friday, the Chinese National Development and Reform Commission, in conjunction with its State Department, published documents outlining its plans to “restrict” dealings in “real estate, hotels, studios, entertainment, sports clubs and other overseas investment.”
It’s a significant blow to companies like Dalian Wanda Group, which had been one of China’s most aggressive acquirers in recent years — and one of Hollywood’s deepest-pocketed buyers. Wanda splashed a healthy $3.5 billion on “Jurassic World” production company Legendary Entertainment in early 2016, but its proposed $1 billion acquisition of dick clark Productions fell through earlier this year due to difficulties getting money out of China and gaining the approval of regulators at that eye-popping price tag, as TheWrap exclusively reported.
And while big-ticket purchases of Hollywood entities appear to be off the table for now — a Chinese-owned major or mini-major studio, which appeared almost imminent a year ago, now seems like a far-fetched possibility — co-financing arrangements with Chinese companies, so important to many studios, also may dry up.
John Burke, a partner at Akin Gump who focuses on film finance and leads the firm’s entertainment group, told TheWrap that he’s worked on numerous deals with Chinese partners over the last six months that have all failed to get government approval, and Friday’s announcement only validates the increasingly pessimistic climate surrounding Hollywood deals involving Chinese partners.
“What [China’s] been telling us for the last six months is that entertainment deals can get approved if they satisfy certain requirements,” he said. “Yet we haven’t seen any entertainment deals actually get approved. Maybe they weren’t saying what they really mean. And now we know that’s actually the way we were heading.”
And with the regulatory documents not distinguishing between long-term investments like Wanda taking an equity stake in Legendary and short-term individual or slate financing deals, Burke says that it looks like the entertainment restrictions will affect both.
“I think this is a total shutdown,” he said. “Until this actual announcement came out, people were still hopeful. Maybe not optimistic, but hopeful that some companies could still get investments approved. But now…”
That would be a notable change from just a few months ago. Schuyler Moore, a partner at Greenberg Glusker who’s worked on numerous deals involving Chinese film companies, told TheWrap earlier this summer that China’s de facto crackdown on entertainment industry acquisitions hadn’t yet affected purchases of individual films or content financing deals — as long as they could manage the currency restrictions.
“I don’t expect it to be a change as far as purchase of content for Chinese distributors,” Moore said.
However, a high-profile agent who spoke on the condition of anonymity because he’s working on active deals with Chinese financial partners told TheWrap that those arrangements been viewed with an increasingly large grain of salt.
“If you have a Chinese partner, sometimes you don’t have a partner at all,” he said.
Burke said Friday’s announcement, while hardly shocking, puts a capstone of sorts on what was once a deep well of Chinese capital ready to be poured into the Hollywood — at least for now.
“I think there’s just been a lot of pessimism in the market,” Burke said. “I think this codifies it.”
12 Chinese-Owned Media Companies, From Dick Clark Productions to AMC (Photos)
A firehose of Chinese investment has been flowing into Hollywood for the last few years, as Middle Kingdom firms have scooped up production companies and theater chains by the billion. And while D.C. has finally taken notice -- and is asking the government to take a closer look at foreign ownership of American content companies -- Chinese firms have already accumulated a substantial portfolio of media and entertainment-related companies often at healthy premiums. And Hollywood isn’t ready to look that gift horse in the mouth.
AMC/Carmike/Legendary/Getty Images
AMC THEATRES Owner: Dalian Wanda Group
Wanda, a real estate and entertainment conglomerate owned by China’s richest man, Wang Jianlin, made its first Hollywood splash in 2012 when the company paid $2.6 billion for AMC Entertainment, the parent of AMC Theatres, the second-largest theater chain in the U.S.
AMC Theatres
Carmike Cinemas Owner: Dalian Wanda Group
Wanda-owned AMC paid $1.2 billion to acquire Carmike Cinemas in a deal that just closed in November. The combined chain will be America’s largest theatrical exhibitor, passing former No. 1 Regal Entertainment.
Mike Kalasnik
Legendary Entertainment Owner: Dalian Wanda Group
Wanda paid $3.5 billion for the “Jurassic World” production company in January, even though Legendary lost $500 million last year, according to a Chinese regulatory filing. However, plenty of Legendary’s high-octane action and fantasy flicks have been bigger hits in China than the U.S., such as “Warcraft.”
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Dick Clark Productions Owner: Dalian Wanda Group
Wanda spent $1 billion to acquire the producer of the Golden Globes, American Music Awards and “New Year’s Rockin’ Eve.” The deal marks Wanda’s first foray into television after spending billions on the big screen.
Dick Clark Productions
Voltage Pictures Owner: Anhui Xinke New Materials
Anhui Xinke, a copper processing company, bought an 80 percent stake in Voltage parent Midnight Entertainment for $351 million. Voltage is the production company behind Oscar-winning films including “The Hurt Locker” and “Dallas Buyers Club.”
Voltage
STX Entertainment Owner: Hony Capital, Tencent
Independent distributor STX was founded with investments from private equity giant TPG and Chinese firm Hony Capital. The company also has a co-financing deal with China’s Huayi Bros. Media, and this year secured a strategic investment from Tencent to expand into digital content, music and virtual reality.
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World Triathlon Corporation Owner: Dalian Wanda Group
Wanda paid $650 million last year for the company that organizes the Ironman Triathlon races, folding it into its new Wanda Sports division.
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IM Global Owner: Tang Media Partners
Tang Media Partners, which has offices in Shanghai and L.A., acquired a controlling stake in Stuart Ford’s film finance firm from Indian conglomerate Reliance in June. IM Global has financed or produced more than 30 Hollywood films, including Mel Gibson’s “Hacksaw Ridge.”
IM Global
Studio8 Owner: Fosun Group
Chinese conglomerate Fosun is the largest shareholder in former Warner Bros. chief Jeff Robinov’s production company, having invested $200 million in Studio8.
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Dichotomy Creative Group Owner: LeEco
Consumer tech company LeEco’s subsidiary Le Vision Pictures opened an L.A. office this year and hired former Paramount Pictures President Adam Goodman to run it and oversee a slate of English-language films. As part of the deal, LeEco acquired Goodman’s production company, Dichotomy.
Adam Goodman
Cirque du Soleil Owner: Fosun Group
It’s a Canadian circus, not a movie or TV studio, but Cirque du Soleil operates six Vegas shows, several tours and earned $845 million in revenue in 2014. Last year, TPG and Fosun acquired a majority stake in Cirque du Soleil for $1.5 billion.
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Riot Games Owner: Tencent
Tencent acquired a 93 percent stake in the video game publisher for $400 million in 2011 and acquired the remainder last December. Riot’s “League of Legends” is the most played PC game in the world.
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Firms from China have been scooping up production companies and theater chains by the billion in recent years
A firehose of Chinese investment has been flowing into Hollywood for the last few years, as Middle Kingdom firms have scooped up production companies and theater chains by the billion. And while D.C. has finally taken notice -- and is asking the government to take a closer look at foreign ownership of American content companies -- Chinese firms have already accumulated a substantial portfolio of media and entertainment-related companies often at healthy premiums. And Hollywood isn’t ready to look that gift horse in the mouth.