Corporate China

Wanda Global binge likely to target real estate

Wanda is likely to target assets with a strong real estate component in its upcoming global buying spree, making purchases in the $1-3 billion range.

PUBLISHED : Sunday, 15 September, 2013, 1:26pm
UPDATED : Sunday, 15 September, 2013, 1:27pm

Media have been buzzing about possible acquisition targets by Wanda Group, a top Chinese real estate firm, after the company's talkative founder Wang Jianlin disclosed he has a massive war chest for global purchases. Some have speculated the new buying binge could focus on hotels or other service-oriented businesses, following Wanda's big recent moves into the hospitality business and its landmark purchase last year of AMC Entertainment, the second largest US movie theater operator. But I would bet my money on real estate, as that's what Wang knows best and it's an area where Chinese firms in general have shown a strong interest in buying overseas assets. 

Wang has quickly emerged as one of China's most colorful and prominent business figures, following Wanda's purchases of AMC and British yacht maker Sunseeker over the last two years. Over the past week Wang further strengthened his position as a leading business personality, as he topped two of the most widely watched annual lists of China's richest men, including one published by Forbes that estimated his net worth at $14 billion (HK$108.6 billion). 

Wang was back in the headline once more at the annual Summer Davos conference that takes place at this time each year in China, this time being staged in the northeast coastal city of Dalian where Wanda is based. At the conference, Wang said his company has up to $5 billion (HK$38.8 billion) to spend each year on global M&A, and he wants to focus on the entertainment and leisure industries.  

Wang added his view that his major foreign acquisitions have been surprisingly easy, even in sensitive western markets like the US where local officials are sometimes wary of such investments. I'll admit that I was among the earlier skeptics, predicting that Wanda's $2.6 billion (HK$20.2 billion) deal to buy AMC Entertainment last year could ultimately get blocked due to political sensitivities. But the deal was approved with little or no controversy. The approval of another more sensitive sale of leading US pork products maker Smithfield (NYSE: SFD) to China's Shuanghui late last week also seemed to reinforce the fact that western governments won't block most major Chinese M&A for political reasons.

So the interesting question becomes: What assets will Wang target in his new buying binge, and is he likely to pay a big premium? Some have speculated companies like Marriott (NYSE: MAR) and Starwood (NYSE: HOT) could be in his sights, as both are premier names in the hotel management space. But with market values of more than $10 billion (HK$77.5 billion), both of those companies are probably well out of Wanda's price range. And besides, I do think that Wang will focus on firms that have a big real estate component, rather than on companies that provide services like hotel management.

That said, perhaps he could take a close look at real estate investment trusts (REITs) like Host Hotels (NYSE: HST) that specialize in hotel ownership, or in companies like Hilton, which has just filed to make a $1.25 billion (HK$9.7 billion) IPO. Media reported earlier this year that Wanda was also in talks to acquire a major European movie theater chain, though those talks also later fell apart. Other possibilities could see Wang buy individual trophy properties in big markets like New York, or possibly buy a big regional hotel operator like Shangri-La (0069.HK) and expand its global presence.

Given his sudden strong interest in global assets, I would expect Wang to move forward quickly and aggressively with his purchasing. Accordingly, we could see some big deals in the $1-$3 billion (HK$7.75-HK$23.3 billion) range in the next two years by Wanda, which could include nice premiums for owners of those assets.

Bottom line: Wanda is likely to target assets with a strong real estate component in its upcoming global buying spree, making purchases in the $1-3 billion range.

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