Media company is among other multinational corporations facing hurdles in the country
Media giant Viacom Inc. is in talks to sell a majority stake in some of its China operations after running into difficulties trying to scale its business in the world’s second-largest economy, according to people familiar with the matter, reports The Wall Street Journal.
Viacom, which owns children’s entertainment network Nickelodeon, film studio Paramount Pictures, and music network MTV has operated in China for more than two decades. The New York-based company in the last few months has had discussions about a stake sale with at least one Chinese entity, the people said, adding that a deal may or may not materialize.
The talks follow similar divestments by large U.S. corporations including McDonald’s Corp. and Hewlett-Packard Co. in recent years. Other large multinational companies that have operated in China for years are also considering stake sales or even complete exits from their businesses in the country, according to investment bankers and advisers.
In the early 2000s, China was the land of opportunity for virtually every major multinational company. Banks and consulting firms raked in big fees coaching American companies on how to enter the country. Now, many are advising companies on how to exit or restructure their operations. Investment bankers at Morgan Stanley, JPMorgan Chase & Co. and some boutique firms in Asia are spending more time talking to companies rethinking their China strategies.
The Viacom talks have involved the potential sale of a majority share in its channel brands, such as Nickelodeon and MTV, in China, an arrangement similar to the company’s joint venture with Reliance Industries Ltd. in India. Viacom sold Reliance the majority stake in the venture last year.
Selling a controlling stake in its China business to a domestic investor could help Viacom reduce its potential regulatory risk in the country at a time of high trade and political tensions between Beijing and Washington, while still allowing it to profit.
Companies are finding they need to restructure as the promise of turbocharged Chinese growth dissipates, said Brent Carlson of consulting firm AlixPartners. Growth remains robust by global standards, and for many firms China is too big to ignore. But it can also be brutally competitive and fraught with regulatory hurdles. China’s trade conflict with the U.S. is also threatening to crimp American companies’ growth prospects in the country.
AlixPartners helped bring many companies to China over the past two decades. Now, Mr. Carlson said he has transformed his business to advise companies on pruning their operations.
Lian Lian, co-head of mergers and acquisitions for North Asia at JPMorgan, said the rise of dominant homegrown players, slowing economic growth in China and the development of e-commerce are prompting more multinational companies to assess their Chinese strategies.
She recently helped advise Dutch beer giant Heineken NV on selling its China business to the country’s largest brewer and taking a one-fifth stake in the buyer, China Resources Beer Holdings Co. China is the world’s largest beer market by volume, but Heineken had struggled to expand on its own despite having a business there since the 1980s.
Some foreign companies are concerned that a Chinese call for nationalism could dent their prospects. When McDonald’s in 2017 sold an 80% stake in its China operations to state-owned Citic Ltd. and U.S. private-equity firm Carlyle Group LP, the restaurant chain was shifting to a so-called asset-light structure to reduce its ownership of physical outlets. One consideration in the deal was the reputational risk of operating a U.S. company in China and the potential for negative consumer sentiment to affect its business, according to people familiar with the matter.
Industry participants say companies currently active in high-demand China sectors, such as semiconductor chips and other high technologies, could become obsolete as China builds out its own capabilities.
In the pharmaceutical industry, some companies that entered China on the back of a national reform policy to bring foreign expertise to the sector were crowded out of the market during the next round of policy changes. Among them was Dublin, Ohio-based Cardinal Health Inc., which in 2018 sold its Chinese pharmaceutical and medical-products distribution business for more than $1 billion to a local rival after facing challenges scaling up in the country.
Many large corporations are still growing and making money in China. The top 20 U.S. companies in the S&P 500 with the most sales in China reported $158.4 billion in China sales in 2017, according to The Wall Street Journal calculations, a figure that surpasses the $129.9 billion in goods China imports from the U.S. And in certain industries where regulations have been rolled back—such as financial services and automobiles—U.S. and foreign companies are still trying to expand in China, bankers and advisers say.
Viacom is working to build two Nickelodeon theme parks in Chinese cities that will feature cartoon characters including SpongeBob SquarePants and Dora the Explorer. Photo: Nickelodeon.
Viacom has long wanted to ramp up its presence in China. Since the mid-1990s, MTV has had a 24-hour Mandarin channel that features Chinese and international music, and in 2005 Viacom became the first foreign media company to take a 49% stake in a Chinese media company when Nickelodeon formed a joint venture with state-owned Shanghai Media Group to produce and broadcast children’s programs in the country. That deal has since lapsed.
Viacom executives for years spoke publicly about the immense growth opportunities presented by the country’s giant population, but tight regulations—such as government-imposed quotas on film distribution and foreign media companies’ access to broadcast television networks—have limited Viacom’s ability to expand. Paramount Pictures has been limited in the number and types of movies it can distribute on the mainland, though the company has achieved Chinese box office successes with films including Teenage Mutant Ninja Turtles and Transformers: Age of Extinction in recent years.
More recently, Viacom has struck deals to distribute music videos and TV shows on iQiyi Inc., an online-video platform controlled by search giant Baidu Inc. Viacom is also working with local organizations to build two Nickelodeon attractions in Chinese cities that will feature cartoon characters including SpongeBob SquarePants and Dora the Explorer – the Nickelodeon Cultural Resort in Foshan and a Nickelodeon theme park in the Mall of China.
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