‘Made in China’ Label Makes Way to America’s Big Screens
Cheryl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The love affair between Hollywood and China is deepening. Following on-again, off-again talks that began more than a year ago, the privately-owned Chines Dalian Wanda Group Corp., one of that nation’s largest theater company owners, has agreed to purchase AMC Entertainment Holdings (NASDAQ: AMCX) for a reported $2.6 billion.
That’s one of the largest takeovers by a Chinese company of an American company ever. That’s also a significant cultural event, given the wide chasms that separate communism (China) from capitalism (America) and state-sponsored propaganda (China) from First Amendment freedom (again, America). But on the money front, perhaps the deal doesn’t bode so badly.
AMC – the second largest theater chain in the nation, with a payroll that provides for roughly 18,000 -- has not been trading for months as it mulled the financial worthiness of an IPO. The company, which has ownership of, or interest in, 351 movie theaters in the United States and Canada, has been floundering for revenues for nearly three straight years. A recent string of movie successes had injected some life into the company, yet come late 2011, AMC executives were still facing nearly $216 million in outstanding loans and another $300 million of notes that were coming due in 2014.
The debt service costs were skyrocketing. Yet Wanda’s not worried.
"We are confident that after the merger, AMC will turn positive," said Wanda chairman Wang Jianlin, during a May 21 signing ceremony. "We have absolute confidence in the future of the company."
So what does that mean for AMC? Or more to the point, what does that mean for would-be investors of industry competitors, Regal Entertainment Group (NYSE: RGC) or Cinemark Holdings Inc. (NYSE: CNK)? Regal, currently selling at just over $13 a share, has maintained that range for more than a year, with the dramatic fluctuations coming in 2008 and, with lows around $8 and highs around $22, respectively. In 2010, Regal even purchased several of AMC’s theaters, adding to its nationwide store of nearly 550 theaters and keeping it as the world’s largest theater operator. Cinemark, meanwhile, nearing $22 a share – representing a slow and steady climb from the $7 range in 2008 – reported solid revenue numbers its second quarter, at nearly $579 million. That’s millions more than expected, setting the stage for an even healthier return as we head into the summer’s blockbuster months.
Yet China – and not just Wanda – is coming on strong in America’s movie industry.
In April, Walt Disney Co. (NYSE: DIS) agreed to a joint initiative with China’s Ministry of Culture and with the nation’s largest Internet corporation, Tencent Holdings Ltd., to help develop its animation industry. Shortly after, DreamWorks Animation SKG Inc. (NASDAQ: DWA) entered into a venture with China to build a flagship cartoon media center in Shanghai. Money aside, one has to wonder where all this foreign influence on America’s culture might lead.
“We have no plan whatsoever to promote Chinese movies in the U.S. market,” Wang Jianlin, chairman and president of Wanda, told a USA Today reporter in May. That’s a fine statement – but hardly reassuring. Propaganda is a tool, after all, of the Communist Party, and it’s not farfetched to question whether subtle political messages could eventually wind into America’s theaters – or if America’s culture, economics, tastes and habits could slowly be pushed off the big screen.
No doubt AMC will see some economic boosts, at least in the short term, from these new Chinese partnerships. And would-be investors waiting for the company’s return to trade could profit from the growth.
But my money’s on a more ‘buy America’ approach. My patriotic roots are more resistant to a Chinese buy-out of one of America’s most iconic forms of communication and entertainment.
Cheryl K. Chumley has no financial interest in any of the above companies, but her daughter does own a share of Disney. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend DreamWorks Animation and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.