ENTERTAINMENT: Wanda Bulks Up on Odeon, Balks at Carmike

Bottom line: Wanda will use AMC as its flagship for building a global entertainment empire, which will include its newly purchased European Odeon theater chain and could also include a revised higher bid for US operator Carmike.

Wanda’s AMC in deal to buy UK’s Odeon

The acquisitive Wanda Group is in a couple of major headlines in its quest to build a global movie theaters empire, led by a new blockbuster acquisition that will see it buy Britain’s Odeon and UCI Cinemas Group for about $1.2 billion. But while it advances in Europe, the company is hitting more resistance in the US, where Wanda already owns top player AMC Entertainment (NYSE: AMC). Wanda is trying to expand its US base by buying smaller operator Carmike Cinemas (Nasdaq: CKEC), but now new reports are saying the company is unlikely to raise its bid to a level that investors are demanding.

An interesting footnote to Wanda’s recent overseas buying binge is that it has failed to encounter any rival bids in its campaign to build a global cinema empire. That’s probably because few other bidders see much value in this very mature industry that is facing growing competition on a wide range of fronts from digital services.

Wanda chief Wang Jianlin obviously still sees some potential in the sector, most likely due to a booming box office in his own home China market. That market has posted healthy double-digit growth every year over the last decade, and many believe it will soon pass the US to become the world’s biggest box office.

Perhaps that’s true, but I would still side with others who believe the movie theater business is past its prime in most of the world besides China and is probably on the cusp of a much longer-term decline. But Wang Jianlin is a much savvier businessman than me, having built up a real estate empire that has made him one of China’s richest men.

The current move into cinemas is part of Wang’s bigger campaign to diversify beyond real estate, and his latest deal has Wanda signing a definitive agreement to buy Odeon for 921 million pounds ($1.2 billion). (company statement; English article; Chinese article) London-based Odeon is privately owned and operates 242 theaters with 2,236 screens, making it one of Europe’s top operators.

Under the deal, Odeon will become a unit of AMC, which Wanda bought in 2012 for $2.6 billion and later listed in New York. That appears to show that AMC will become the main listed unit for Wanda’s global entertainment empire, which could also potentially include a chain of theme parks the company is aiming to open around the world. (previous post)

Higher Bid for Carmike?

Meantime, related media reports are saying that Wanda’s separate bid to buy smaller US theater operator Carmike could get shelved due to big disagreements on the company’s valuation. Wanda launched the bid earlier this year by offering $30 per Carmike share, representing around a 50 percent premium to levels before the announcement. But several major shareholders came and said the bid greatly undervalued Carmike, which they believed was worth around $45 per share.

Now the latest reports are quoting AMC’s recently named chief Adam Aron saying that Wanda still wants to do a deal, but there is no way the Chinese company will offer $40 per share. (English article) Carmike stock jumped as much as 3.5 percent after Aron’s remarks, though it still trades at just above the earlier $30 offer level.

I’ve previously said that Wanda was likely to raise its offer to perhaps as high as the $33-$35 level to do a deal. Such a level certainly seems reasonable, since it would still represent a huge premium of about 70 percent to the company’s value before Wanda’s bid. In this case Carmike’s investors do appear to be getting a bit greedy, and I suspect both sides will eventually reach a compromise that conforms with a deal in the $33-$35 range.

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