A Beijing Ticket to Hollywood - Wall Street Journal

By MICHELLE KUNG And RYAN DEZEMBER

In 2008 Dalian Wanda Group Corp. Chairman Wang Jianlin dressed from head to toe in traditional Mongolian garb before delivering a speech on corporate responsibility before the Inner Mongolian Federation of Industry and Finance.

Now, Mr. Wang is wooing friends in another exotic territory: Hollywood.

Wanda, a real estate developer and manufacturer that has also invested in karaoke clubs, is poised to become one of the biggest players in the U.S. movie business.

The company said late Sunday that it plans to spend $2.6 billion to buy the second-largest U.S. cinema chain, AMC Entertainment Holdings, a 92-year-old concern with more than 5,000 screens across 32 states and the District of Columbia.

The deal would create the world's largest cinema owner and mark the largest acquisition of a U.S. corporation by a Chinese buyer on record. It also confounded many in the U.S. film business, who could find few synergies between AMC and Wanda, which got into the movie business in 2005 and now runs 86 movie theaters in China, along with production and distribution operations.

The acquisition is a reversal of typical Chinese-American entertainment-business deals, in which U.S. studios have sought access to China's explosive growth and a way to skirt the tight limits the country puts on foreign films.

"This deal caught us by surprise, because we've never seen this kind of emphatic strategic acquisition by a Chinese media company," said Standard & Poor's stock analyst Tuna Amobi. "It has usually been the reverse, where U.S. companies like Disney or News Corp. go to China."

Started as a commercial real-estate developer, Wanda Group operates 28 luxury hotels and 40 department stores around China, according to the company's website. It has dabbled in manufacturing tires but has mostly stuck to real estate, hotels, tourism, entertainment and retail.

Mr. Wang, Wanda's chairman, said on a webcast announcing the deal that Chinese-made movies would eventually enter the broader U.S. market, but the move would be gradual. He added that Wanda wouldn't use AMC as a vehicle to distribute Chinese movies. Whether the chain shows Chinese movies "will be decided by AMC management according to U.S. industry rules and market demand," he said. "Wanda won't meddle in it."

He also said Wanda would look for other deals, targeting big cinema operators in Europe and the U.S.

China-based executives at Wanda didn't return calls seeking additional comment regarding Wanda's strategy.

Unlike many state-owned Chinese businesses, Wanda is closely held, though it depends on the government's blessing for many of its activities, including which movies it shows. It couldn't be immediately determined whether there are owners beside Mr. Wang.

Mr. Wang, who is in his late 50s, is the sixth-wealthiest person in China, according to the Hurun Report, which tracks the rich in China and estimated his wealth at $7.1 billion last year.

Wanda's trajectory from commercial property development to hospitality and entertainment mirrors a broader effort to rebalance China's economy toward consumer activities and away from heavy industry and infrastructure. China's Ministry of Culture aims to make consumer categories account for 5% of gross domestic product by 2016, compared with 2.78% in 2010, according to the state-run Xinhua news agency. Senior officials in October called for more investment in the culture industry to make it a bigger part of economic activity.

By entering the U.S. movie business, Wanda joins an industry that has long blamed China for billions of dollars in lost sales of movie tickets and DVDs. Hollywood has often accused China of abetting piracyâ€"or at least failing to adequately police DVD bootlegging and online copying.

In buying AMC, Wanda would also see up close the other challenges facing Hollywood, including competition from online diversions and stagnating ticket sales. Unlike the rapidly growing Chinese film industry, which is building new theaters at a blistering pace, the U.S. industry is in flux. Theater attendance and box office grosses are up 18.4% and 15.7%, respectively, so far this year, but the growth follows two years of declines.

U.S. movie attendance fell to 1.3 billion in 2011, a 16-year low, according to Hollywood.com, cutting into theaters' two biggest revenue sources: sales of tickets and concession-stand sales of sodas, popcorn and other munchies.

Price increases have offset declines in attendance only so muchâ€"and have risked turning off moviegoers who shelled out an average $7.93 per ticket, and considerably more for 3-D movies or IMAX. Box-office revenue in the U.S. and Canada fell 4% in 2011 to $10.2 billion. China, on the other hand, saw box-office revenue climb 29% to 13.1 billion yuan ($2.08 billion) last year, according to China's State Administration of Radio, Film and Television.

As part of the deal, Wanda plans to invest as much as an additional $500 million in AMC, which the U.S. chain can use to update its cinemas' technological innovations and reduce debt. (AMC Entertainment isn't related to cable TV's AMC Networks Inc.)

The acquisition reverses the usual flow of entertainment-business investment. U.S. studios have in recent years been eager to form film-production joint ventures with Chinese companies, seeking to tap into the nation's explosive growth and skirt the tight limits it puts on foreign films. China Film Group, a state-owned enterprise, supervises myriad theatrical functions in the country, including distribution.

Until now, most Hollywood-China deals have involved American studios attempting to break into the rapidly growing Chinese market. DreamWorks Animation SKG Inc. in February announced plans to form a joint venture with state-owned investment-management company China Media Capital and Shanghai Media Group Inc., one of China's largest television broadcasters.

Also in February the Chinese government relaxed its limits on foreign films, saying it will now allow a total 34 films from abroad a year, up from 20, so long as the additional films use either large-screen IMAX or 3-D technologies. News Corp., which owns The Wall Street Journal, said last week it would acquire a nearly 20% stake in film distributor Bona Film Group Ltd. to give it a stronger foothold there

The prospect of a two-way street cheered at least one of AMC's movie-chain rivals. "With Wanda Group entering into the U.S. market, we think it is an opportunity for China, as a country, to remove the barriers of exhibition ownership and film quotas, opening up their markets to global competition," said Tim Warner, Cinemark Holdings Inc.'s CEO.

The deal comes amid a broad push from the top echelons of China's leadership for a greater emphasis on film, animation and other pop-culture subjects. The push is intended to bolster China's soft power, to give it the same international sway that the U.S. enjoys through the global popularity of Hollywood movies.

AMC is owned by private-equity firms which include CCMP Capital Advisers LLC, Apollo Global Management LLC, Bain Capital LLC, Carlyle Group LP, and Spectrum Equity Investors LP. People familiar with the matter said the sale will be bring modest profits to those firms.

AMC Entertainment Holdings was born in a 2006 merger between AMC Entertainment Inc. and Loews Cineplex Entertainment Corp. Both of those chains had been subject of buyouts that came after an attempted combination failed in 2004.

Bain led a group that also included Carlyle Group and Spectrum Equity in a $1.5-billion acquisition of Loews in June 2004. A month later Apollo and CCMP, formerly J.P. Morgan Chase & Co.'s private-equity arm, took AMC Entertainment private in a $1.67 billion transaction.

The proposed deal needs to be approved by a number of regulatory committees on both sides. In the U.S., the deal needs antitrust approval by the Federal Trade Commission and the Justice Department. China's Committee on Foreign Investment in the U.S. also must approve it.

U.S. regulators may be more inclined to permit the movie-theater deal to go through than Cnook Ltd.'s proposed acquisition of Unocal Corp. in 2005, which was pulled amid concern over a foreign government gaining control of the strategically important oil producer.

â€"Stefanie Qi, Isabella Steger and Erica E. Phillips contributed
to this article.

Write to Michelle Kung at michelle.kung@wsj.com and Ryan Dezember at ryan.dezember@dowjones.comN