With $3.5B Deal For Legendary Entertainment, Chinese Billionaire Is Pursuing Trans-Pacific Vertical Integration
Founder of Legendary Entertainment Thomas Tull will continue running operations at the studio following its acquisition by Wanda. (Image credit: Getty Images)
Chinese entertainment conglomerate Dalian Wanda Group announced Monday night that it had acquired U.S. film and TV production company Legendary Entertainment for $3.5 billion in cash.
Legendary founder and CEO Tull will keep running day-to-day operations, he said in a press call Monday night. Following Wanda’s outright acquisition of 100% of Legendary’s existing shares, Wanda and Legendary say they will now form a new legal entity together.
“Together, Wanda and Legendary will create a completely new international entertainment company,” said Tull, who insisted Wanda would not have control over Legendary’s creative content.
The move comes as an increasingly unpredictable U.S. box office turns Hollywood Eastward for investment and ticketing dollars. China is expected to overtake the U.S. as the world’s largest film market by 2017 after it grew by 49% in 2015 to $6.7 billion. The U.S., meanwhile, recorded some $11 billion in box office receipts in 2015 thanks to a string of tentpoles from Star Wars: The Force Awakens to the Legendary co-produced Jurassic World.
Owned by China’s richest man, Wang Jianlin, Dalian Wanda Group already runs Wanda Cinema Line, one of China’s largest movie theater chains. Among its other businesses is U.S. movie theater chain AMC Entertainment Holdings, which it bought for $2.6 billion in 2012.
“We have to have a position in the global industry,” Wang explained, citing a desire to become a key player in a worldwide industry which he said is controlled by a “few American movie companies.”
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Wang said he plans to partner the studio with its in-house film production unit and eventually take it public. A date for the IPO was not set. He also noted the acquisition sought intellectual property that could be turned in theme parks.
The purchase appears to be trans-pacific vertical integration: Legendary makes the big-budget action movies such as Jurassic World and Godzilla that often perform well in China, while Wanda owns the U.S. and Chinese cinemas that show the films and can earn when they screen. For Tull, Legendary’s productions are aligned with a powerful businessman that can help Legendary access the growing Chinese market, which is limited by a government ruling on a quota of annual foreign film releases in the country.
“The Chinese film industry is 30-50 years behind that of the U.S.,” said Wang, who dismissed questions of censorship. “We have much to learn.”
Once a commercial real estate firm, Wanda has since diversified into hotels, challenged Alibaba with investments in e-commerce and grown its entertainment holdings.
Tull’s $1 billion net worth remains the same following the $3.5 billion equity value acquisition. On the call, Tull declined to disclose financial details of the transaction or confirm whether he still holds equity in the company. A lawyer who worked on the deal said Tull ”will have significant incentive tied to the performance of the company;” it is unclear whether that is cash or stock-based.
Tull, a former laundromat and test prep business owner, started Legendary in 2005 by co-financing movies with partners including Warner Bros. and Universal Pictures. That led to hits such as The Dark Knight and more recently, Straight Outta Compton. It has since begun producing its own films, with mixed receipts: 2015′s Crimson Peak flopped, grossing just $77 million on a $55 million budget.
The LA Times reported the move was facilitated by Legendary’s other investors–Japanese telecommunications firm SoftBank Group Corp. and investment firm Waddell & Reed Inc.–agreeing to sell their stakes to Wanda. Variety first reported rumors of the deal in December.
According to Wanda’s most recent earnings report, annual revenue rose 19% in 2015 to $44.14 billion thanks to increases in sales of its leisure and financial businesses. Following the news, which was released Tuesday morning Biejin time, Wanda stock fell 2.31%; it recovered to close at $39 HKD a share.
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