EXCLUSIVE: STX Entertainment is re-evaluating making its initial public stock offering on the Hong Kong Stock Exchange and is contemplating, among its options, whether to sell shares on one of the U.S. exchanges, according to people with knowledge of the matter.
The independent film studio had hoped to raise $500 million from investors in an IPO initially timed for August or September, though the Hong Kong market has grown increasingly volatile — giving investors little to cheer about.
The Hang Seng Index has been in a five-month-long swoon, marking its worst performance since 2011, amid concerns about China’s deteriorating relationship with the U.S., a slowing economy and a regulatory crackdown that caused Internet giant and STX investor Tencent to report its first profit decline in a decade.
Against this backdrop, STX’s executives have begun to weigh their options. It doesn’t help that the money-losing studio was attempting to drum up investor enthusiasm after a pair of summer box office disappointments, The Happytime Murders and Mile 22.
STX declined comment for this story.
Sources familiar with the matter say STX has not withdrawn its application for listing on the Hong Kong exchange, which, if not renewed, lapses in November.
Last spring, STX filed a 462-page prospectus ahead of the proposed Hong Kong offering, which sought to generate some $500 million to fund the company’s ambitions. It detailed the company’s efforts to strike gold with a unique combination of Asian access, a ruthless focus on “mid-budget” features costing between $20 million and $80 million, and a strong pedigree beyond its Chinese investors. (TPG Growth and John Malone’s Liberty Global have also bought in, and the bankers and sponsors of the IPO were JP Morgan and Goldman Sachs.)
The company, which is cash-flow positive and has seen its revenues more than double this fiscal year, nonetheless has had a bumpy ride at the box office. Two consecutive late-summer offerings — Mark Wahlberg action movie Mile 22 and Melissa McCarthy puppet satire The Happytime Murders — both underperformed. A third, Jennifer Garner vigilante thriller Peppermint, did a bit better last month. So far, it has grossed nearly $40 million worldwide and is on a profitable path.
STX’s executive team continues to hold meetings with potential investors in the United States as it evaluates interest in a public offering through one of the New York exchanges, sources say.
Another end game that seems entirely plausible, given the relationships of TPG Growth founder Bill McGlashan, would be a more fully developed 50-50 partnership between STX and the Chinese government in the first true China-U.S. studio. Wanda may have failed to deliver on its ambitions for its massive studio in Qingdao, but McGlashan has spent three decades working in China and is seen as a savvy dealmaker who understands the cultural nuances better than most.
Not for nothing are STX’s business cards printed in both English and Mandarin.