January 25, 2017 / 7:29 AM / 3 years ago

UPDATE 2-Crabtree & Evelyn owner Nan Hai to buy Chinese cinema business

* To buy cinema business from Orange Sky Golden Harvest

* Agreed to pay $480 mln for City Entertainment

* City Entertainment manages 76 cinemas in China (adds deal details, company background)

By Julie Zhu

HONG KONG, Jan 25 (Reuters) - Chinese investment company Nan Hai Corp Ltd has agreed to buy a Chinese cinema business from Orange Sky Golden Harvest Entertainment Holdings Ltd (OSGH) for 3.3 billion yuan ($480 million) as it expands in the country’s movie sector.

Nan Hai, which bought the personal care brand Crabtree & Evelyn for $175 million in December 2015, in a statement on Wednesday said it will purchase 100 percent of City Entertainment Corp Ltd, a subsidiary of Hong Kong cinema operator and film production firm OSGH, in a cash deal.

The move by Nan Hai, which also owns China’s second-largest cinema investment and management firm, Dadi Cinema Group, comes as the country’s film industry is expected to pick up this year after a lacklustre 2016.

Total ticket sales in China rose just 3.7 percent last year to 45.7 billion yuan ($6.64 billion) amid a crackdown on box-office fraud, after a 49 percent jump in 2015.

Yu Xin, an executive committee member of Nan Hai and chief executive officer of Dadi Cinema, told Reuters that the takeover will help Dadi better penetrate China’s tier one and two mega cities, where City Entertainment operates and manages 76 cinemas with 531 screens.

“As Dadi’s cinemas focus on smaller Chinese cities from tiers two to four, this deal will greatly supplement our current network in China, and further strengthen our market position,” she said.

Dadi Cinema, which ran 350 cinemas with almost 2000 screens in China as of the end of 2016, will continue to acquire smaller cinema operators at home, Yu said. The company plans to acquire and build more than 200 cinemas over the next three years.

The deal, which is also Nan Hai’s largest acquisition in the cinema business, comes eight months after its subsidiary Dadi Cinema attracted 1 billion yuan ($145.36 million) investment from Alibaba Pictures, the film and entertainment arm of Chinese internet behemoth Alibaba.

Both Dadi Cinema and Alibaba Pictures will collaborate in film distribution, movie marketing, joint membership management, and big data, Yu said.

Nan Hai’s and Dadi Cinema’s efforts to expand the foothold in the film industry comes as cinema-crazy China is poised to become the world’s largest movie market by box-office revenue in the next year years, overtaking the United States.

Set up in 2006, Dadi Cinema is currently the second largest cinema investment and management company in China, after Wanda Cinemas, the cinema branch of property-to-entertainment conglomerate Dalian Wanda, according to film research firm EntGroup.

OSGH, previously known as Golden Harvest, dominated Hong Kong’s box office sales in the 1970s and 1980s, and played a key role in introducing Chinese-language productions, including those by Bruce Lee and Jackie Chan to Western audience, according to its website.

As one of the first players in mainland China, OSGH however failed to turn the early lead into profits. Loss of its subsidiary City Entertainment increased fivefold to HK$165 million last year.

Wednesday’s deal, subject to regulatory approvals, is expected to be completed by the middle of the year, according to Yu.

Nan Hai’s shares were up 4.2 percent on Wednesday after the announcement, against a flat broader market.

$1 = 6.8796 Chinese yuan renminbi Reporting by Julie Zhu

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