In his Hong Kong Economic Journal column, Dalian Wanda’s founder Wang Jianlin talked about why he decided to buy AMC Entertainment Holdings Inc. four years ago and how he eventually turned it around.
The mainland property and entertainment tycoon acquired AMC for US$2.6 billion including debt in 2012. The US movie theater chain had been losing money for years before the deal was signed.
So why did Wang still decide to go ahead with the acquisition?
If everybody says it is a good idea, you got to be very careful. But if very few people agree it is the right thing to do, there is a much greater possibility of reaping big returns, provided you do it properly, Wang wrote.
Wang did a lot of study before pulling the trigger.
He hired several external consultants to evaluate the deal and compared their views with those of his own team.
He checked his cashflow and weighed the potential impact of failing to turn AMC around.
Having concluded that the deal provides an opportunity to jumpstart Wanda’s international entertainment business and the Chinese group has the ability to absorb the shock should the acquisition turn out to be a flop, Wang took the plunge.
Wang didn’t introduce drastic changes after the purchase, but he made two very important moves.
For starters, he injected fresh capital and lowered the debt ratio of AMC, enabling it to get financing at a cheaper rate.
Wanda’s backing and its banking relationships with US and Chinese lenders also made a big difference.
Then, Wang set up a bonus system for the AMC management team, basically linking the firm’s profitability to their financial rewards.
Three years later, AMC started to make money.
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