This “May Day” file, other film and television companies make a lot of money when the old film and television giant Huayi Brothers is the “big head”.
The 2020 annual report recently disclosed by Huayi Brothers shows that Zhejiang Dongyang Mira Media Co. Mera Media is the product of cooperation between Huayi Brothers and Feng Xiaogang.
In November 2015, Huayi Brothers acquired 70% of Feng Xiaogang’s Mera Media for 1.05 billion yuan. At that time, Mera Media was only 2 months old, with total assets of only 13.6 million yuan and total liabilities of 19.1 million yuan.
Five years later, the acquisition has left Huayi Brothers with a mess of chicken feathers. Since Huayi Brothers acquired Mera Media, its share price has dropped by nearly 80%, and institutions have long pulled out of the company.
When the acquisition of one of the agreed list of films “cell phone 2” delayed the landing, the film was considered to be indirectly triggered by the “Fan Bingbing incident” trigger, the film and television industry is also in 2018 began to enter the bottom. The time has changed, the scene of film and television companies gambling on acquiring star companies may be difficult to reproduce.
The proclaimed project has been delayed
Huayi Brothers is keen on mergers and acquisitions, having acquired a large number of star-owned companies in the early years, with a sky-high price of 1.05 billion yuan to acquire 70% of Feng Xiaogang’s Mira Media, which has attracted the most market attention. At the time of Huayi Brothers’ acquisition, Mera Media was only 2 months old, with total assets of only $13.6 million and total liabilities of $19.1 million.
As a binding condition, Feng Xiaogang’s side promised that from 2016-2020, Mera Media promises annual after-tax net profit of not less than 100 million yuan with an annual growth of 15%, and if the target cannot be accomplished, Feng Xiaogang will make up the difference in cash.
In 2016-2107, the company completed performance of 102 million yuan and 117 million yuan respectively, just meeting the target. 2018, Mera Media only completed 65.015 million yuan performance. Huayi Brothers’ 2018 annual report disclosed that Feng Xiaogang paid Huayi Brothers 68.21 million yuan in performance compensation. 2019, Mela Media achieved a net profit of 164 million yuan.
On April 28, Huayi Brothers released its 2020 annual report. The annual report showed that Mera Media only achieved net profit of 5.52338 million yuan, which was lower than the performance commitment of 174.9 million yuan. Huayi Brothers said that in 2020, affected by the epidemic, the project progress of Mela Media was delayed to a certain extent, and the performance commitment was not completed, which will be compensated according to the agreement.
According to the betting agreement, Feng Xiaogang needs to pay out performance compensation of about 168 million yuan. Together with the performance compensation in 2018, Feng Xiaogang will pay a total of about 235 million yuan in performance compensation over five years.
Source: Screenshot of Huayi Brothers’ 2020 annual report
Looking back at this acquisition, the promises related to Mera Media were not fulfilled. The acquisition announcement of Huayi Brothers in 2015 disclosed that Mera Media had already reserved and developed projects including the movie “Mobile Phone 2”, the movie “Nian Nian”, the movie “Do Not Disturb 3”, the movie “Li Ren Xing”, the TV series “12 Confession Letters” and variety shows. In addition, Target has developed and implemented a new director program to train a new generation of directors.
China Securities Journal reporter noted that, except for “Mobile Phone 2” which was delayed in public release due to its involvement in the Fan Bingbing incident, few other works have been publicly available, and the project may have been put on hold.
Lighthouse Pro shows that Mira Media participated in the production of four films announced, of which three were released, including “I am not Pan Jinlian”, which was released in November 2016 and grossed 484 million yuan; “Fang Hua”, which was released in December 2017 and collected 1.423 billion yuan at the box office; “Only Rue Knows” was released in December 2019 and recorded only 160 million yuan at the box office.
Source: Lighthouse Pro
Gambling acquisition leaves a mess of chicken feathers
“Looking back today, Huayi Brothers’ acquisition of Feng Xiaogang’s Dongyang Meila in 2015 was actually cost effective.” Fengying Capital fund manager Wu Yuefeng wrote an article pointing out that the valuation of the entire media sector was high at the time, with Huayi Brothers valued up to more than 100 times. On the one hand, the high valuation benefited from the bull market of GEM at that time, and on the other hand, Huayi Brothers pioneered the capitalization of stars. The capitalization of stars is divided into three stages: 1.0 stage is the beginning of Huayi Brothers’ listing, allowing Feng Xiaogang, Fan Bingbing, Li Bingbing and Huang Xiaoming to become shareholders of the company; 2.0 stage is the establishment of personal studios, which can do their own filming, business and investment, and also sign artists for development; 3.0 stage is the participation of stars in the capital market operation, such as Zhao Wei manipulating Wanjia Culture and stars being investors.
Huayi Brothers’ acquisition of Mira Media is most criticized by the market for being acquired with cash rather than equity. Based on the share price of Huayi Brothers after the announcement on November 15, 2015, the share price of Huayi Brothers has sunk by a cumulative 78.72% in more than five years.
Wu Yuefeng pointed out that a good M&A proposal cannot be all-cash and must have a check-and-balance strategy to ensure that the interests of all parties are aligned.
Changes in institutional positions in Huayi Brothers
Source: Wind screenshot
Huayi Brothers was once a big bull stock on the GEM and a long position for institutions. Now with three consecutive years of huge losses, Huayi Brothers has received little institutional attention, and no fund held Huayi Brothers in the first quarter of 2021.
The new culture has also suffered losses in tying up stars. in January 2017, the new culture acquired 40% of PDAL held by Stephen Chow for its wholly-owned subsidiary New Culture Hong Kong. The performance pledger promised that PDAL’s net profit after the impact of non-recurring gains and losses and non-cash fees and expenses in its consolidated statements for the four years from 2016-2019 would total RMB 1.04 billion, and according to the audit report provided by PDAL, the cumulative net profit for the three fiscal years from 2016 to 2018 was equivalent to RMB 679 million.
According to New Culture, the company has provided the list of information required for the audit to PDAL, but PDAL has not provided all the information required for the audit as requested by the company. The company then filed an arbitration application with the Hong Kong International Arbitration Centre (HKIAC) in accordance with the agreement, demanding Zhou Xingchi to pay New Culture Hong Kong the principal and interest on the equity repurchase amount totaling RMB 748 million.
New Culture’s 2020 annual report disclosed that the company received a notice of arbitration filed by Stephen Chow with the HKIAC in February 2021, claiming that New Culture Hong Kong should pay Stephen Chow the equity transfer amount of RMB144 million and interest. As of the date of disclosure of the report, the arbitration matter between the parties is still at the preliminary acceptance stage of the HKIAC and the outcome of the hearing is not yet involved.
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