This article first appeared in The Edge Financial Daily, on March 8, 2016.

HONG KONG: The latest deal from China’s richest man is unexpectedly logical. The AMC cinema chain, controlled by Wang Jianlin’s Dalian Wanda Group Co Ltd, will buy its US rival Carmike Cinemas for US$1.1 billion (RM4.5 billion).

It looks like rational consolidation at a defensible price — aspects mostly lacking from the tycoon’s recent splurge on movie studios, theme parks and soccer clubs. Perhaps financial reality is kicking in.

At US$30 a share, AMC is paying a near-20% premium to its smaller competitor’s last closing price. Subtract Carmike’s last reported net debt and the deal values its equity at US$748 million. That’s a pricey-looking 44 times what analysts expect Carmike, which specialises in theatres in smaller non-urban areas, to earn this year.

But AMC thinks it can carve some US$35 million from its target’s annual cost base. After tax, those savings are worth more than US$200 million today — well above the US$130 million premium that AMC is handing to Carmike shareholders.

The timing looks right too. Box office revenues in the United States jumped 7.4% to top  US$11 billion in 2015, reversing a 5% decline in the previous year, according to Box Office Mojo. Adrenaline-packed hits like Star Wars: The Force Awakens and Jurassic World as well as features like reclining seats and alcohol were enough to tempt American audiences from their couches. A combined AMC-Carmike would be the country’s largest cinema chain.

Wang’s other recent forays have been less straightforward, if not financially perplexing. Since taking over AMC in 2012, privately held Wanda has snapped up Legendary, the US movie studio behind Jurassic World; the company that oversees Ironman triathlons; a sports marketing group led by the nephew of disgraced Fifa boss Sepp Blatter; and a stake in Spanish football club Atletico Madrid. Just last month, the Beijing-based company announced plans to help build a mammoth 80ha theme park outside Paris.

By comparison, Wanda’s second deal with AMC is a sequel investors can for once wrap their heads around. — Reuters