Chinese conglomerate buys AMC Entertainment for $2.6 billion

A Chinese conglomerate is set to become the largest movie theater operator in the United States.

The Wanda Group, a Chinese company with extensive interests in the entertainment business, has agreed to acquire AMC Entertainment and its 5,000 movie screens across North America.

The deal is valued at $2.6 billion and marks the largest investment to date by a Chinese company in the American film industry. It also marks The Wanda Group’s first investment outside of China.

Most of the deals made between Chinese companies and the entertainment industry have been made by Hollywood companies striking business deals in China. But Wanda’s decision to buy AMC could pave the way for more deals by Chinese investors looking to diversify their investments and establish themselves globally.

For Chinese investors, businesses like the AMC theater chain are more attractive than treasury bills. China already holds more than $1.17 trillion worth of U.S. Treasury notes.

Phil Levy, international economics professor at the Columbia School of International and Public Affairs, said the treasury is concerned with keeping its Chinese investors. Quietly, the U.S. Treasury has allowed China to buy U.S. bonds directly, in what’s being described as the first-ever direct relationship with a foreign government.

“The Chinese have a lot of money and they’re trying to figure out something sensible to do with it,” Levy said.

But, with films like Avengers taking in more than $1 billion worldwide in just a month, the AMC purchase could actually be a bargain, generating substantially more return than more T-bills.

Levy also said, for the Chinese, investments in bonds more dangerous because they’re buying the bonds in dollars. If their currency appreciates, they take a loss.

“That small positive return that the rest of us see on treasuries can look like a negative return to them. So that prompts them to get a little more adventurous,” he explained.

The deal parallels investment moves made by Japanese companies in the late 1980s, when they bought several buildings in Manhattan and in California. Some are predicting Chinese companies will attempt to buy American businesses as the Japanese did.

Levy said initial attempts by the Chinese to invest in American companies, in scarce but essential natural resources, like petroleum, met political opposition.

“There was an attempt to purchase a division of the U.S. oil company Unocal sometime back and that raised a very big political stir. So I think they’re trying to strike a balance: what’s a good investment, what look really appealing to them, and what’s going to pass political review here in the U.S.,” Levy said.

However, this time, the brand name is what’s most important.

“One of the things we’ve seen there is things that have a certain brand cache. They’re recognizable from the outside. These aren’t necessarily the hidden deals that no one’s ever heard of but promise a good rate of return,” Levy said.

According to the Los Angeles Times, China saw a 30 percent increase in box office sales last year, and this year, passed Japan as the biggest foreign market for Hollywood films. The country is working to provide entertainment to its growing middle class with the goal of having 25,000 movie screens in the next five years.

Levy said it’s unlikely the Chinese will return to investing in traditional manufacturing, but also said that it’s difficult to predict.

“It’s not entirely clear to me that these decisions are being made the way a dispassionate economic analyst would make them, as opposed to someone who is looking to make a global splash or gain prestige, which makes it a little bit harder to predict what the next steps will be,” he said.

Overall, the deal will be good for the United States, Levy said.

“It’s a vote of confidence in the United States and money that can lead to jobs and expansion,” Levy said. “I think it’s more of a long-term thing. I think we will see more of it.”

According to the Huffington Post, Wanda is considering more acquisitions abroad for its entertainment, hotel and retail units.

“We want to be a big company, not just in China but in the world,” Wanda chairman Wang Jianlin told the Huffington Post.

The deal will make Wanda the world’s biggest movie theater operator. The company said it will invest an additional $500 million to fund development and upgrades at AMC’s 346 theaters in North America.