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Universal and Perfect World Pictures of China Complete $500 Million Film Slate Deal

Perfect World Pictures and Universal Pictures have announced the completion of a $500 million slate financing deal running up to five years that will make the Beijing-based maker of films, television programs and online games a major investor in one of Hollywood’s most successful studios.

Word of the deal came in an announcement from Jeff Shell, chairman of Universal Filmed Entertainment Group, and Michael Chi, chairman of Perfect World. It will cover the co-financing of 50 films or last for five years, with specific pictures within the deal to be announced later. The pact will not alter Legendary Entertainment’s co-financing of some Universal films. Legendary was recently purchased by another Chinese firm, Dalian Wanda.

The cementing of the arrangement — the first time a Chinese company will invest in a multiyear slate deal — comes a month after it was first reported in Variety, marking another in a series of significant investments by Chinese concerns in Western entertainment operations. The deal came to light just days after Dalian Wanda revealed its $3.5 billion deal for Thomas Tull’s Legendary Entertainment.

The $500 million investment is said to be split evenly between debt and equity contributions to the Universal movie slate. Sources familiar with the deal said Perfect World’s investment would get it a 25% share of most, but not all, of the films released by Universal.

Universal’s Shell said he was “delighted” with the deal and added: “With Perfect World’s history of success in the Chinese market, we look forward to exploring other opportunities to work together.”

“Building out our film business and expanding into international markets are two of the most important initiatives for Perfect World,” Chi said. “Universal has had a stellar last few years, and with a slate that boasts many titles that we know will thrive in the marketplace, we are confident our partnership with them is a solid step in the right direction. Our partnership with Universal is not just about making movies together, but also about the opportunities that exist in the synergy across our multiple business lines to maximize strategic value for all involved.”

Perfect World Pictures is best known as a television production company, though it also has a track record in film investment and distribution. It was producer-distributor on 2009 romantic comedy “Sophie’s Revenge,” starring Zhang Ziyi; the 2011 Chinese hit “Love Is Not Blind”; and arthouse film “The Piano in a Factory.” It was also the Chinese co-distributor on “Divergent,” “Insurgent” and “Ender’s Game.” This month, it is a co-distributor on the 2013 racing drama “Rush,” imported for a flat fee release.

The Universal deal is a big step up for Perfect World Pictures, but it may also help the company’s other ongoing corporate operations. Last month, the company announced that it would pay $1.82 billion (RMB 12 billion) to buy up its larger and better-known online gaming affiliate Shanghai Perfect World Technology, a company that until last year was listed on the Nasdaq stock market in North America. Like several other Chinese companies, it chose to delist from the U.S. stock markets, with the ambition of relisting in China, where ratings for entertainment firms are still sky high.

Perfect World Pictures also said that it would raise $760 million (RMB 5 billion) through an issue of new shares to four investors, including group chairman Michael Chi Yunfeng. At the time it described the new funds as  earmarked for “film and TV program investment and game development, operation and distribution.”

Perfect World Pictures currently has a market capitalization of $1.9 billion (RMB 12.5 billion).

Major Chinese firms have been pouring big money into Hollywood entities and Hollywood film slates. Corporate investments in the past 18 months have included diversified conglomerate Fosun’s investment in Jeff Robinov’s start-up Studio 8, the Warner-China Media Capital joint venture Flagship Entertainment as well as Wanda’s acquisition of Legendary.

Film finance deals include Huayi Brothers Media’s backing of an 18-picture slate from new studio STX Entertainment, Hunan Television’s co-investment in a slate of Lionsgate pics and Bona Film Group’s November deal to invest in a package of Twentieth Century Fox titles, through a venture with the Seelig Group. Other recent single picture investments have included China Film Group’s investment in “Fast & Furious 7” and Alibaba Pictures’ investment in “Terminator: Genisys.”

Perfect World was represented by Manatt, Phelps & Phillips. Universal Pictures was advised on the transaction by the Raine Group and represented by Gibson, Dunn & Crutcher.

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