Wanda’s M&A Activity Continues in China

Wanda Cinema Line, China’s largest exhibitor, announced May 15 that it has signed a framework agreement to invest 300 million yuan ($43 million) for a 1.9 percent stake in Bona Film Group, one of China’s leading production companies. According to the agreement, new Bona cinemas—including both newly constructed and newly purchased cinemas—will now become part of Wanda.

As of this writing, Wanda had a total market value of RMB 63.54 billion ($9.2 billion). Bona, on the other hand, was valued at RMB 15 billion ($2.2 billion) after its recent completion of series A financing. With Wanda’s new investment, Bona’s market value increases to RMB 16 billion ($2.3 billion), close to three times the company’s value when it decided to delist from the NASDAQ over a year ago.

According to the signed agreement, both Wanda and Bona will increase capital expansion, exhibition resources, marketing cooperation, and film investment. Linking the filmmaking process from production to distribution will have a positive effect on both companies supply chains, and it will have a huge influence on the structure of China’s film industry itself.

Bona, established in 1999, is one of the most experienced companies in China’s fledgling film industry. The company’s ethos was rooted in content development and the seeking of new distribution channels. With the rapid development of China’s film industry over the last decade and a half, Bona’s dominance in regard to film content has become more and more apparent, but as a traditional film company, Bona—along with Huayi Bros and Enlight Media—has struggled to keep up on the distribution/exhibition side.

Wanda’s strength, as is commonly known in the West, where it owns North America’s largest theater chain AMC Theaters, lies in exhibition, which it owes to its beginnings as a real estate company. Bona has recently tried to play catch-up, purchasing its own cinemas, but the numbers speak for themselves.

Wanda operates 416 theaters with 3,654 screens, and its cinemas took in a total of RMB 2.48 billion ($359 million) at the box office in the first four months of 2017. In comparison, Bona owns and operates just 41 theaters with 338 screens across China, one-tenth of Wanda’s total.

Wanda, however, can be considered a latecomer in terms of production and distribution. The four movies it produced and distributed last year—For a Few Bullets ($7.8 million), Kill Time ($2.0 million), Scandal Maker ($8.8 million), and Chongqing Hotpot ($57.1 million)—combined, earned less at the box office than Bona’s biggest hit, Operation Mekong ($171.7 million). Adding in the Bona-produced-and-distributed film From Vegas to Macau 3 ($172.1 million), Call of Heroes ($25.0 million), Phantom of the Theater ($13.5 million), and Sword Master ($14.5 million), Bona’s market share at the box office far exceeded Wanda’s. In 2016, Bona produced and distributed 13 films grossing RMB 3.7 billion ($536 million), or 9 percent of the domestic box office share.

And even though Wanda now has a dedicated distribution arm in Wuzhou to help market its own films, it still doesn’t solve the fundamental issue in that Wanda has a shortage of quality film content.

Thus, Wanda’s investment in Bona appears to be a win-win situation for both companies. Wanda, keen to build an entertainment empire on both sides of the Pacific, can take advantage of Bona’s rich production and content-development experience, while Bona, with Wanda’s financial support, can keep up with China’s leading private film companies Enlight Media and Huayi Bros. as it seeks an IPO on China’s booming stock market.

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