Wanda Cinema Line Corp said Tuesday it is shelving a plan to reorganize its parent company's entertainment assets after box-office takings in China, the world's second-biggest film market, declined sharply in July.
According to a filing with the Shenzhen Stock Exchange, Wanda Cinema, a subsidiary of China's conglomerate Dalian Wanda, will scrap a 37.2 billion yuan ($5.6 billion) acquisition of a movie-making sister company Wanda Media Co, owner of U.S. film studio Legendary Pictures.
Shares of Wanda Cinema fell 1.17 percent, closing at 69.97 yuan on Tuesday.
It seems to have been a sudden move. In a June 29 stock filing, Wanda Cinema said the reorganization plan was going well and there were no factors that might cause the suspension of the deal.
The listed arm attributed its latest decision to "fairly big changes in market conditions" and the need to allow Legendary and Wanda Media to complete their internal integration.
It may "revisit a combination with the target assets later after the internal integration" is essentially finished, the filing showed.
This isn't a good time for Wanda Cinema to take over a filmmaking business, said analysts.
"Given tepid film industry conditions in China, investors are likely to undervalue the acquisition, which wouldn't boost the stock price of Wanda Cinema," Wang Danqing, a partner with Beijing-based market consultancy ACG Management, told the Global Times on Tuesday.
There's been much talk in recent years in the media that China's box office will soon be the world's largest, ticket sales in July reportedly plunged by 18 percent year-on-year.
The box-office takings for Warcraft, the first movie Legendary released since the company was bought by Wanda early this year, aren't an utter failure. But the film may still lose $15 million, U.S.-based industry publication The Hollywood Reporter reported on July 13.
The long-awaited video game adaption, which hit Chinese screens on June 8, racked up $430.1 million globally, more than half of which was from the Chinese market, according to the U.S. entertainment media outlet.
Given this situation, it won't be easy for Legendary Pictures to become profitable this year, which is what Wanda expected. That will deepen investors' concerns over the future of its film-making business, said Wang.
Before being acquired by Wanda, Legendary recorded big losses for two consecutive years. In 2015, its net loss reached $555.6 million, widening from $343.4 million in 2014, according to media reports.
Moving into the entertainment industry are just part of Dalian Wanda's business diversification strategy. The company has already poured lots of money into the sports sector and also tested the e-commerce waters in partnership with Internet mammoth Baidu Inc and Tencent Holdings in 2014.
However, an unidentified source was quoted by domestic news portal thepaper.cn as saying on Monday that Wanda's e-commerce business has to stand on its own, as the two partners have stopped their investment.
Wang said it's likely that Dalian Wanda is transferring money away from other businesses such as entertainment to support the e-commerce unit.
Dalian Wanda declined to comment when contacted by the Global Times on Tuesday.
