Flushing Shareholder Money Down the Drain

Listed Firms Use Spare Cash to Become Stars of TV and Film

A copper alloy manufacturing company recently announced a plan for a private placement to raise about 1.325 billion yuan to buy a film and TV company.

Anhui Xinke New Materials Co. Ltd. said on May 28 that it will use some of the money to buy Xi'an Mengzhou Film & TV Culture Communication Co. Ltd. and the rest to help cash flow at that company.

Its plan is part of a larger trend in China that involves a slew of cross-industry mergers and acquisitions between listed companies in an array of industries, such as materials, manufacturing and even fireworks, buy film and TV companies. This trend follows an earlier one that saw firms target mobile game companies and enjoy big profits.

.......Beijing Xiangeqing Group Co. Ltd., which focuses on the high-end catering businesses, bought 51 percent of Beijing CCTV Splendid Film and TV Corp. Ltd. on March 6, and six days later bought a similar stake in Dinv Television Media (Shanghai) Co. Ltd.

An investor who declined to be named said the moves by Xiangeqing's chairman, Meng Kai, were not much more than a promotion.

His point, echoed by analysts, is that listed companies are sometimes trying to improve their share prices through these cross-industry M&As. This has caught the attention of the stock market watchdog, which is looking at companies whose share prices have fluctuated abnormally, sources close to the regulator said.

It doesn't say much for a market that doesn't flush the stock price straight into the toilet. If the numbers are small enough it can be written off as a PR stunt, but a copper company buying a film and TV company (and raising capital to do it) is a disaster waiting to happen. In the case of Anhui Xinke New Materials, the firm issued new shares to buy the film company; shares fell from ￥8.75 on May 28 to ￥8.08 on May 30, before recovering to ￥8.42 as of Thursday's close.

On the flip side, this is good news for China's entertainment industry.