UPDATED with Legendary statement: U.S.-based media companies owned by China’s Dalian Wanda Group defended their financial power today following reports suggesting they can no longer count on backing from the real estate colossus.
AMC Entertainment this morning challenged what it called “speculative media reports that contained some erroneous information.” That seemed to refer to a Wall Street Journal story Monday that said Chinese financial regulators ordered the country’s biggest banks to stop making loans to billionaire Wang Jianlin’s Dalian Wanda to finance foreign entertainment acquisitions.
That report, plus weaker-than-expected weekend box office results, contributed to a near 10% drop in AMC’s stock price Monday. Shares are up 3.3% this morning, following the company statement.
AMC says that Wanda “has never been a source of acquisition funding for AMC.” That includes its deals for Starplex Cinemas, Odeon & UCI Cinemas, Carmike Cinemas, and Nordic Cinema Group Holding — all made since 2012 when Wanda bought AMC.
Like AMC. Wanda-owned Legendary this afternoon said in a statement that it is “well capitalized with liquidity to fund its film & TV slates and operate its business as usual.”
The studio added that it has “not been presented with any Chinese bank documents referenced by the recent press reports surrounding its parent, Wanda, and has not experienced any change in its relationship with Wanda.”
In February, U.S. regulators approved Wanda’s $3.5 billion deal to acquire Thomas Tull’s Legendary. This was the biggest acquisition yet by a Chinese company of an American media player. Wanda said the combined company will be the highest revenue-generating film company in the world.
AMC CEO Adam Aron said this morning that the No. 1 exhibition chain is “an American company run from its Leawood, KS, headquarters by our management teams located in the U.S. and Europe. Our shares are publicly traded on the New York Stock Exchange, and our shareholder roster includes some of the biggest U.S.-based institutional investors, as well as Dalian Wanda, which owns a majority of our shares.”
Wanda, he added, “does not actively participate in the day-to-day running of AMC beyond the Board of Directors service of three Wanda executives side-by-side with six American directors on the AMC board.”
The theater company says it “has never received committed financing from any bank headquartered in mainland China for any purpose, including for acquisitions.” Its deals were funded by “a syndicate of U.S.-based banks with AMC as the borrower without financial guarantees or credit enhancements from Wanda. The fourth acquisition was funded by AMC’s available cash on hand.”
Intercompany transactions between AMC and Wanda are “de minimis.” Wanda reimbursements for general administrative and other expenses came to $461,000 in 2016, $738,000 in 2015, and $1,423,000 in 2014 — and “are expected to be less than $600,000” this year.
RBC Capital Markets’ Leo Kulp said he hasn’t “seen indications that Wanda is facing a liquidity crunch that would require the sale of AMC shares.” At current stock prices, Wanda probably would see only $1.5 billion before taxes if it sold its stake, “which is very small in comparison to Wanda’s over $115 billion in assets.”
That’s why he’s maintaining his “outperform” rating on the company, though “there could be continued near-term volatility” due to “a weaker box office and the Wanda situation taking time to play out.
The report about the Chinese government’s order to banks seemed to explain, at least in part, Wanda’s surprise decision this month to sell 76 hotels and 91% of 13 tourism projects to developer Sunac China for $9.3 billion. It’s believed to be the Middle Kingdom’s second-largest property deal ever.