LEISURE: Wanda Ups Carmike Bid, Gets Boost from China Life

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Bottom line: Wanda may need to raise its offer price again to buy Carmike, while a plan to privatize its property unit stands a good chance of winning shareholder approval.

Wanda ups Carmike bid

Conglomerate Wanda Group is in a couple of a major headlines, one involving its traditional real estate business and the other for the newer entertainment unit it’s building up as part of a diversification drive. The real estate headline centers on Hong Kong-listed property developer Dalian Wanda (HKEx: 3699), which has just received an endorsement from a major shareholder in its bid to go private. The second item centers on Wanda’s fast-growing cinema business, and has the company boosting its offer for US theater operator Carmike (Nasdaq: CKEC) after minority stakeholders complained a previous bid was too low.

The pair of stories nicely summarizes Wanda’s two core businesses, and its broader efforts to move beyond its older estate business that catapulted founder Wang Jianlin to one of China’s richest men. With China’s real estate market due for a major correction over the next decade, Wang is placing his bets on rapid growth for entertainment among China’s growing middle class. That bet has seen him aggressively build up an entertainment empire that includes theme parks, movie theaters and film studios.

We’ll start with the Carmike story, which began in March when Wanda’s AMC Entertainment (NYSE: AMC) offered $30 for each of Carmike’s shares, representing a premium of about 50 percent to the stock’s price before the offer. But several of Carmike’s big shareholders said the price was too low and the company was worth around $45.

AMC’s said earlier this month there was no way Wanda would pay more than $40 for Carmike’s stock, and I predicted the offer would get raised to around the $33-$35 level. (previous post) Now AMC has done just that, with the latest reports that it has offered $33.06 per share. (English article; Chinese article) The deal also offers Carmike shareholders the option of exchanging each of their shares for 1.0819 shares of AMC stock if they want to continue investing in the cinema sector.

Investors didn’t seem too impressed by the news, with Carmike shares dipping 1.4 percent to $30.69 in the latest session. That appears to show that investors believe Carmike’s shareholders will still balk at this latest offer, and the deal could collapse unless Wanda and AMC are willing to raise their bid again.

Property Privatization Endorsement

Meantime, Wanda’s separate bid to privatize its Dalian Wanda property arm has gotten a vote of confidence with word that major stakeholder China Life (2628.HK; 601628.SS) has agreed to support the deal. (English article) Word of the privatization plan first emerged earlier this year, and was part of a broader wave of de-listings by offshore-traded Chinese companies that believed their stock was undervalued by foreign investors.

The latest reports cite Wanda saying that China Life, which owns about 7.4 percent of Dalian Wanda’s shares, has sent a letter saying it officially approves of the proposal to privatize the company for HK$52.80 per share. The price represents a 9 percent premium to Dalian Wanda’s IPO price from about a year earlier, but some shareholders have said the offer is still too low.

We’ll have to wait until August 15, which is when Wanda has scheduled a shareholder meeting to vote on the privatization. Wanda needs at least 75 percent of shareholders to support the deal and less than 10 percent to oppose it for the buyout to succeed.

This China Life announcement is clearly a public relations move by Wanda to influence public opinion about the deal, and probably reflects the fact that approval of the buyout at the August 15 meeting is far from certain. I don’t know very much about broader sentiment towards the deal, but would say it has a greater than 50 percent chance of approval since it’s relatively close to the slightly higher valuations that some were hoping for.

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