Legendary Entertainment founder and CEO Thomas Tull unexpectedly resigned on Tuesday, nearly a year to the day after China’s Dalian Wanda Group acquired the production company for $3.5 billion.
But in those 12 months, the relationship between Tull and Wanda CEO Wang Jianlin, the wealthiest person in China, apparently hit a wall. A great one.
Legendary’s long-hyped “The Great Wall,” a historical adventure epic starring Matt Damon and Andy Lau and directed by Zhang Yimou (helming his first English-language film), was intended to be China’s first true crossover hit. It stars A-listers from both sides of the Pacific with a plot that has Europeans and Chinese working together to battle monsters on the Great Wall.
But despite the hype and Wanda’s marketing might behind it, the film couldn’t even manage to be a blockbuster in that one market, making just $164 million at the Chinese box office. That seems impressive until one considers that “Furious 7” made $391 million there and even “Zootopia” hauled in $236 million — and that “Great Wall” carried a production budget estimated at $150 million.
According to a source with knowledge of the situation, when Tull sold his company to Wanda, he received “phantom stock” in the company due to China’s prohibition on foreigners directly investing in entertainment companies. Instead of owning a piece of the company, Tull received payments corresponding to his interest in the company that would mimic the benefits of ownership, but without the security. The upside for Tull was the eye-popping $3.5 billion sticker price, but the downside to the deal was that he didn’t get any tangible stock to hold on to.
Instead, Tull was relying on a planned reorganization of Wanda’s entertainment assets into its publicly traded theater chain, Wanda Cinema Line, in order to provide a liquidity event. Without such an event, his shares in Legendary were essentially worthless. But with Legendary’s struggles to turn a profit — the production company lost $500 million last year, according to Chinese regulatory filings — that liquidity event grew more distant.
In August, Wanda suspended its reorganization plan — that would have had Wanda Cinema Line acquire Legendary parent Wanda Media for $5.7 billion — after numerous questions from Shenzhen Stock Exchange regulators. The move indicated the company would revisit the deal after “further discussion” and “better integration” of Legendary. As part of its scrutiny, Chinese regulators required that Legendary report four consecutive quarters of net profitability in order for it to become part of the publicly traded entity. (China’s stock market uses net profit multiples as a core metric.)
But with “The Great Wall” failing to get meaningful lift-off in China, where TheWrap’s source said it was initially targeted to make $350 million, that meant Legendary would be unlikely to turn a profit anytime soon. Tull may have taken a look at the performance of “The Great Wall” and Legendary’s future slate, which includes mega-budget action movies like “Pacific Rim: Uprising” in the pipeline, and decided to negotiate an exit now rather than wait for a liquidity event that might never have happened. And China’s richest man appears to have played yet another winning hand.
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.