China's Wanda acquires Legendary Entertainment for $3.5 billion
Chinese real estate and investment conglomerate Dalian Wanda Group has acquired Legendary Entertainment in a deal valued at $3.5 billion, the two companies announced at a lavish signing ceremony in Beijing Tuesday morning.
The agreement marks the first time that a movie studio capable of producing big-budget global blockbusters—Legendary has been involved in such hits as Godzilla, Inception, Jurassic World and Pacific Rim—is coming under Chinese ownership. It is also the largest cross-border entertainment acquisition by a Chinese company to date.
“The acquisition of Legendary will make Wanda the highest-revenue-generating film company in the world," said Wanda chairman Wang Jianlin, one of China's richest individuals.
Under the deal, Wanda is acquiring 100 percent of the equity in Legendary and will then reincorporate the studio according to Chinese and U.S. tax structures. Legendary founder and CEO Thomas Tull will remain in charge of the company's day-to-day operations, with a pay incentive tied to the studio's performance. Legendary's chief operating officer and general counsel Marty Willhite described the deal as an "unusually complicated transaction." It is expected to close in the first quarter of this year.
“Together, Wanda and Legendary will create a completely new international entertainment company," Tull said in a statement. "This has never happened before," he added in a conference call with reporters after the announcement. "There's no road map for this, we're putting it together as we go."
"Wanda’s businesses will encompass the full scope of film production, exhibition and distribution, enhancing Wanda’s core competitiveness and amplifying our voice in the global film market," said Wang.
The agreement indeed makes for a bold next step toward Wanda's goal of becoming a global film company. The Chinese conglomerate has been pushing to diversify from its core real estate business since August 2012, when it spent $2.6 billion to acquire AMC Entertainment, North America's second-largest cinema chain. Last year, Wanda paid over $600 million for Hoyts, Australia’s second-largest multiplex chain, and the company also owns China's largest domestic exhibition circuit, Wanda Cinema Line, which has a market cap of $18.5 billion. Rumored to be shopping for a pan-European chain, Wanda is already the world's largest movie exhibitor by far.
Late last year, Wanda installed former Microsoft and News Corp. executive Jack Gao as the head of its revamped film unit, spanning exhibition subsidiary Wanda Cinema Line; its movie production business, Wanda Pictures; and a growing distribution wing, Wuzhou Film Distribution.
Asked whether taking Legendary public was part of the plan for the company in China, Tull said, “The ink is still being dried. We don’t have any definitive plans at this point.” Wang, however, offered that he plans to soon begin pursuing initial public offerings of Wanda's film production and distribution operations, suggesting that those ambitions could entail a restructured Legendary.
Wanda has been investing aggressively in Chinese movies, as well as the occasional Hollywood project. It was the primary financier of 2015 indie boxing pic Southpaw, starring Jake Gyllenhaal. The company is also building what it says will be the world's largest movie production facility, an $8.2 billion studio complex in the Chinese port city of Qingdao. The project, expected to complete its first phase of development in 2017, will comprise 30 soundstages, state-of-the-art postproduction facilities, backlots, China's largest outdoor water tank and a temperature-controlled underwater studio stage.
Sources tell The Hollywood Reporter that Tull had been courting Wang and Gao since last June. Initially, talks centered around Wanda taking a minority stake in Legendary, but the Chinese company's interest in the studio soon grew.
Legendary's ambitions in China stretch back to 2011, when it announced the formation of Legendary East, a joint venture with Chinese studio Huayi Brothers that was to co-produce English-language films in China in order to circumvent the country's strict quota on foreign-film imports. The deal was scuttled when the partners failed to find sufficient financing. But in 2013, Tull found a new partner in China Film Group, the dominant state-run film enterprise. Legendary East will remain a subsidiary after the Wanda buyout, and CFG is understood to be an ongoing partner.
Now led by Peter Loehr, former head of CAA China, Legendary East's next major project is Warcraft, an effects-heavy live-action adaptation of the wildly popular World of Warcraft video game series. The film is set to be released June 10 by Universal.
The joint venture's first major China-U.S. co-production will be The Great Wall, a China-set 3D sci-fi fantasy-adventure film directed by Zhang Yimou and starring Matt Damon, Chinese heartthrob Andy Lau, Willem Dafoe and Pedro Pascal. Budgeted at $135 million, the movie centers on an elite force making a last stand for humanity on China's iconic Great Wall. The story idea was originated by Tull himself.
China's theatrical market is expected to surpass North America as the world's largest by 2017. The booming Chinese box office, which saw astonishing 50 percent growth last year, has inspired a bevy of big entertainment tie-ups between the two countries, as well as careful tailoring of Hollywood projects so that they go down well with the Chinese audience.
But Tull said Wanda wouldn't be exercising any creative influence over Legendary's output, and that the studio would continue producing movies designed for the global stage. "I don't think you'll see a shift in us trying to make Legendary films fit more into the marketplace here," he said. "It just so happens that the movies we make already do very well in China. If we were trying to reverse engineer that, I think I would feel much less comfortable."
Sources tell THR that Wanda, which had been looking to buy into or acquire a Hollywood studio for over a year, found Legendary's slate of special-effects driven tentpoles very appealing. Godzilla grossed more than $77 million in China, while Pacific Rim made almost $112 million there—$10 million more than it earned in the U.S. Legendary is now developing a whole cinematic universe based on Godzilla, King Kong and other monsters.
Wanda was advised on the deal by Joshua B. Grode, a partner at Irell & Manella, while Marty Willhite advised Legendary. Tull was actively involved in negotiations, the parties said.