Chinese $450m Cinema Merger Points to Recovery

By Patrick von Sychowski | July 11, 2022 7:29 am PDT

Chinese cinema operator Hengdian Film and Television (known as HG Entertainment) looks set to become the country’s second largest operator, following a proposed Shanghai Xingyi Cinema. This is the first large-scale merger and acquisition in China since the start of the pandemic, and points to consolidation as the market gradually recovers. Wanda continues to be the China’s largest operator by some distance.

While still in the preliminary planning stage, Hengdian Film and Television released an “Acquisition Intention Agreement” on 5 July, under which will acquire 100% of Xingyi Cinema from Xincheng Development Holdings Co. at a transaction price of not less than CNY 3 billion (USD $447 million). The deal means that Hengdian would leapfrog Dadi Cinema as China’s second largest operator. China’s three largest cinema operator are currently Wanda Films (CNY 7.02 billion – USD $1.044 billion), Dadi Films (CNY 2.23 billion – USD $332 million) and Hengdian Films (CNY 1.78 billion – USD $265 million), and own 715, 336, and 434 theaters respectively. Xingyi Cinema currently ranks seventh with 128 cinemas, which would give Hengdian a total of 662 cinema sites.

If the deal goes through it will accelerate the concentration of cinema operations in China. The proportion of the total box office of the top ten cinema exhibitors in China increased from 34.2% in 2019 rose to 37.6% in 2021. Hengdian has a strong balance sheet and a significant war chest to help fund this acquisition. The news comes after a period in which Dadi is reported to have faced finaicial challenges. According to Sohu, Hengdian will “directly acquire about 70% equity of Shanghai Xingyi by paying cash.” Shares in both companies fell on the news, meaning that the stock market does not see an immediate upside to the proposed merger.

It is the first major cinema deal since the pandemic, after a slew of deals in the period of 2015 to 2017, according to Sina Finance:

We sorted out the acquisition events in the cinema industry since 2015 (excluding shareholding, backdoor, transfer, and statistics of actual industrial mergers and acquisitions), and found that most of them occurred between 2015 and 2017. For example, in July 2015, Wanda Films acquired 1 billion yuan. There are a total of 15 cinema companies. In January 2017, Dadi Films acquired a total of 76 cinemas of Orange Sky Jiahe for 3.3 billion yuan. In March 2017, Poly Films acquired 21 cinemas under Xingxing Culture. 

Sina Finance

Cinemas have recently been reopening in Shanghai after an extended lockdown and initial box office returns indicate audiences returning to cinemas in greater numbers. On 8 July 8 a total of 165 cinemas were in operation in Shanghai, with an operating rate of 47.3%, while the total number of operating cinemas across China was 10,221, and the operating rate was 84.1%. Although several Hollywood blockbusters have not been granted a Chinese release, there are over 40 films lined up for cinema distribution this summer. “Compared with 2020, the box office of Chinese films in 2021 has increased significantly, but it still only recovered to 70% of that in 2019, with a total box office of 47.036 billion yuan [USD $7 billion].”

Patrick von Sychowski
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