Wanda Cinema Line suspends acquisition of Wanda Film and Television, and supervision is tightened. Legendary Pictures 'earnings pressure has become a new threshold

On the evening of August 1, Wanda Cinema announced on the Shenzhen Stock Exchange that it would suspend major asset restructurings of Wanda Film and Television, Qingdao Film Investment (including Legendary Pictures) and Mutual Love Interactive, and would no longer plan related matters during the year.

In just one month, the thinking of Wanda Theater has undergone earth-shaking changes.

According to the restructuring plan released on May 13 this year, Wanda Cinema Line plans to issue shares to 33 counterparties including Wanda Investment to purchase its 100% equity stake in Wanda Film and Television. The estimated value of 100% equity stake in Wanda Film and Television is about 37.5 billion yuan., the parties negotiated and provisionally determined the transaction price of the underlying assets to be 37.2 billion yuan. After the transaction is completed, Wanda Cinema will directly hold 100% equity of Wanda Films.

It is understood that Wanda Film and Television has three major business segments, namely domestic film production and distribution undertaken by Wanda Film and Television, overseas film production undertaken by Qingdao Film and Television through the acquisition of American Legendary Films, and online game distribution undertaken by Mutual Love Interactive. Before the release of the reorganization plan, Wanda Film and Television integrated Qingdao Film and Television and Mutual Love Interactive with itself as the main body. The integration method was for Wanda Film and Television to acquire 100% equity of Qingdao Film and Mutual Love Interactive. After the integration, Wanda's film and television business expanded into domestic film production and distribution, overseas film production and online game distribution business.

Just on June 29, Wanda Cinema Line also announced that it was actively promoting the above-mentioned restructuration-related work, and stated,"As of now, the company's board of directors has not found any relevant matters that may cause the board of directors of the listed company or the counterparty to cancel or suspend this reorganization plan."

Regarding the suspension of this reorganization, Wanda Cinema said that the main reason was that "the securities market environment has undergone major changes after the announcement of this transaction plan." All parties to the transaction believed that the conditions for continuing the reorganization were not mature enough. Specifically, Wanda Cinema listed three reasons:

First, the above-mentioned companies have started internal integration in business, management and other aspects since May 2016. Due to the short completion time, large size, and involving film production businesses in China and the United States, all parties to the transaction believe that integration opportunities should be explored after internal integration is basically completed to better exert the integration effect.

Second, after Wanda acquired Legendary Pictures, it is expected to turn a profit in 2016. However, due to the short acquisition time of Legendary Pictures, objectively it needs to operate independently for a period of time to prove the stability of the profit forecast, and then choose an opportunity to implement restructuring. It is more conducive to protecting the interests of minority shareholders.

Third, the securities market environment has undergone major changes. All parties to the transaction plan to explore the feasibility of reducing transaction prices from the perspective of more conducive to protecting the interests of minority shareholders.

What has changed in the securities market environment?

Putting aside some of the "cliché" descriptions, the most critical reason for Wanda Cinema's suspension of restructuring is undoubtedly the changes in the securities market environment.

In May this year, the market rumored that the China Securities Regulatory Commission had suspended cross-border fixed growth in four industries: Internet finance, games, film and television, and VR. Although the China Securities Regulatory Commission has never positively acknowledged media reports on the above tightening, since then, Storm Technology's acquisition of Caocao Bear Films has failed to meet. Tangde Films has terminated its acquisition of Aimei, and Lugang Culture has announced its termination of the acquisition of the remaining equity of Tianyi Films. This reflects the attitude of the regulatory authorities. At that time, some market participants with a keen sense of smell believed that the reorganization plan of Wanda Theater had encountered the most unfavorable opportunity: the reorganization and listing encountered the strictest supervision, and the film and television industry involved was the first to bear the brunt, so it was unlikely that the meeting would pass smoothly.

On May 24, the Shenzhen Stock Exchange issued an inquiry letter on the reorganization of Wanda Cinema Line, which was valued at 37.2 billion yuan. The main issues were the high valuation of the reorganization target and the rationality of the high performance commitment. The plan shows that the estimated value of 100% equity of Wanda Film and Television is about 37.5 billion yuan, and the estimated value-added rate is about 171.46%, which is a relatively high value-added range. Wanda Film and Television's unaudited simulated consolidated financial statements show that Wanda Film and Television's net profit attributable to owners of the parent company in 2014 and 2015 was-2.691 billion yuan and-3.970 billion yuan respectively, but Wanda Investment promised Wanda Film and Television's 2016, 2017 and 2018 The cumulative net profit for the years will not be less than 5.098 billion yuan.

Although Wanda Cinema responded to the Shenzhen Stock Exchange's inquiry letter on June 3, and on June 6, Wanda Cinema resumed trading and released a reorganization plan. This was originally a reorganization plan with a high value. The injected assets were extremely scarce in A-shares. Not only were there the best private film and television assets in the country, but also international-level high-quality film and television assets such as Legendary Pictures. At that time, the market was extremely popular and closed at a daily limit on the first day of resumption of trading.

However, in A-shares, which pay most attention to the time window, the reorganization of Wanda Theater can be said to be at an untimely time. Just 11 days later, on June 17, the China Securities Regulatory Commission announced that it would publicly solicit opinions on amending the "Measures for the Administration of Material Asset Reorganization of Listed Companies." As soon as the draft opinion was released, the industry was in an uproar, and the title of "the strictest reorganization new regulation in history" was released. According to the information seen by the reporter, the main purpose of this revision is to cool down the "shell speculation" and promote the rational repair of the market valuation system. Specifically, important amendments include the cancellation of supporting financing for restructuring and listing; the extension of the sales restriction time for relevant interested parties: the shares of the original controlling shareholder and the newly entering controlling shareholder of the listed company are required to be locked for 36 months, and the lock-up period for other newly entering shareholders has been extended from the current 12 months to 24 months.

This means that investors in Wanda Film and Television, who originally planned to take advantage of the reorganization and listing of Wanda Film and Television's assets to gain huge profits, will face a one-year longer than the original sales restriction period. Risks such as tight capital chains and falling stock prices will undoubtedly increase greatly. Perhaps because of this, according to Wanda Cinema's announcement,"all parties to the transaction believe that the conditions for continuing the restructuring are not mature enough."

The profitability of Wanda's film and television assets is under pressure.

In addition to believing that the conditions for restructuring are not mature, all parties to the transaction in the reorganization of Wanda Cinema also want to explore the "feasibility of reducing transaction prices."

Reducing the transaction price means that investors 'valuation of Wanda's film and television assets has changed. The key reason behind this may be the focus on the profitability of Wanda Films, especially Legendary Pictures, which was also the focus of the Shenzhen Stock Exchange before.

Wanda Cinema said that it expects Legendary Pictures to turn a profit in 2016. Not only that, in the previous restructuring plan, it also predicted that Legendary Pictures 'net profit will reach 3.1 billion yuan in the next three years, and the net profit of the entire Wanda Pictures will be 5.098 billion yuan (2016-2018 were 1.3 billion yuan, 1.66 billion yuan, and 2.138 billion yuan respectively). However, judging from the progress in the past period of time, Wanda Cinema's forecast may be a bit optimistic.

First of all, before it was officially included in Wanda Cinema, Legendary Pictures had been questioned because of its huge losses for two consecutive years. In 2015, Legendary Pictures 'total operating income was 3.02 billion yuan, net profit was-3.63 billion yuan, and total liabilities were 9.35 billion yuan; in 2014, total operating income was 2.63 billion yuan, net profit was-2.24 billion yuan, and total liabilities were approximately 9 billion yuan.

In fact, because Hollywood's film investment risks have become uncontrollable in recent years, it has become commonplace for many small and medium-sized companies to fall into losses. Relativity Media declared bankruptcy due to the long payback cycle for its films; after parting ways with its long-term partner Warner, Legendary Pictures also lost resource support from the blockbuster factory.

The new film "Warcraft" promoted by Wanda and Legendary Pictures this year was vigorously promoted in China and Wanda and all related parties tried almost everything possible, but the final global box office was only US$430 million, which was not enough to make up for its US$160 million cost.

Next, Legendary Pictures will also release films such as "The Great Wall","King Kong: Skull Island", and "The Mummy". Among them,"The Great Wall" has recently released a final release notice and will be released in December. The film has been rumored to have invested more than US$150 million, which means that the film must at least achieve the current results of "Warcraft" globally before it can achieve its capital recovery. This figure is quite difficult for "The Great Wall", which lacks the accumulation of Blizzard games for more than ten years.

Wanda's film landscape will continue to expand.

Wanda has always been pursuing the expansion of the film field. Although the inclusion of Legendary Pictures and other film and television assets into A-share listed companies has been suspended this time, the reporter believes that Wanda's capital operations such as acquisitions, restructuring, and listings in the film field will continue, and its film landscape will continue to expand.

Less than a week ago, Wanda Cinema announced that it would fully acquire the film media Shiguang. com for US$280 million. The latter became famous for providing professional film reporting and derivative services. According to the unified statement of both parties, Wanda Cinema and Shiguang will study how to open up the user and member systems of both parties, and use this as a basis to explore a new Internet movie distribution model, thereby completing the O2O layout of Wanda Cinema from offline to online.

Prior to this, Wanda also launched a merger with Odeon&UCI, Europe's largest theater line. In addition, Wanda already owned AMC, the second largest theater line in the United States, and the Carmike theater line, which is seeking approval from the target party. Wanda has become a global heavyweight theater operator.

Not only that, according to Reuters, The Wall Street Journal and other media reports, Wanda is also actively participating in the share battle of Paramount Pictures, hoping to become a heavyweight player upstream of the film industry chain as soon as possible through capital operations.

After all, Wang Jianlin has already made Wanda's goal in the field of culture, film and television: by 2020, cultural groups, including film and television, sports, tourism, and children's tourism, will become the top five companies in the world in terms of income. Specifically in the film field, we must control 20% of the global box office of movies-based on the global box office of US$38 billion in 2015, which means that Wanda must control about US$10 billion in the box office in the film field.

It can be expected that this suspension is only temporary, and we will continue to see Wang Jianlin's large-scale operations in the future. Just as the meaningful sentence at the end of the Wanda Cinema's announcement,"We do not rule out an appropriate time in the future and re-explore integration with the target company based on the principle of maximizing shareholders 'interests."

Yien.com compiled and released it based on relevant reports from Sansheng and Hexun.com

Editor: Nancy