Source: Wall Street Journal By Polly Hui
HONG KONG—Veteran Hong Kong investment banker Francis Leung has his eyes set on transforming a popular Chinese cartoon brand to the leagues of Mickey Mouse and Hello Kitty in his first foray into China’s animation market.
The former Citigroup Asia investment-banking chairman grabbed headlines last year when he was part of a consortium that rescued local animation firm Imagi International Holdings Ltd. from the brink of insolvency by investing in the maker of computer-animated films such as Teenage Mutant Ninja Turtles. As chairman of Imagi, Mr. Leung in late February unveiled plans to buy mainland Chinese brand manager Toon Express Group, which owns the character copyrights of “Pleasant Goat and Big Big Wolf,” a highly successful Chinese animation series that revolves around the travails of a clumsy wolf in his quest to hunt a group of innocent goats.
To fund the 814 million Hong Kong dollar (US$104 million) acquisition, Mr. Leung arranged the sale of Imagi shares to investors including Hong Kong billionaire Li Ka-shing’s CK Life Sciences International (Holdings) Inc., Larry Yung, former chairman of Beijing-backed conglomerate Citic Pacific Ltd., and Hopewell Holdings Ltd. Vice Chairman Eddie Ho.
“My original intention was to sell Imagi as a listed cash shell after a financial restructuring,” Mr. Leung said. “But after I took over the company…I began to realize that there is enormous potential in China’s family entertainment market.”
The acquisition of Toon Express Group came just a week before the Chinese government disclosed plans late last month to more than double the value of its entertainment industry to nearly three trillion yuan ($460 billion) within the next five years in an effort to increase domestic consumption and raise the profile of Chinese culture overseas. Chinese officials said Beijing will expedite bank loans and facilitate public listings for companies involved in film and television production, live entertainment, as well as gaming and publishing. It hopes that the initiatives would help encourage the growth of its creative industry.
The “Pleasant Goat” cartoon is broadcast on more than 75 satellite and cable TV networks across China, according to Mr. Leung. He said the first film based on the characters, released in 2009, broke box-office records for locally produced animation films in China with 80 million yuan in revenue.
“Disney has created Mickey Mouse. There is Hello Kitty in Japan. My plan is to turn Pleasant Goat into the national animation brand of China. We will also promote the brand outside China,” said Mr. Leung.
Mr. Leung said Toon Express signed a deal with a unit of Walt Disney Co. in January to manage Toon Express’ consumer-products licensing business. He said Toon Express now has more than 300 licensing agreements.
The acquisition of Toon Express is the latest of a number of high-profile China investments that Mr. Leung has made since leaving Citigroup in 2006, ending his investment banking career that spanned over 30 years.
The deal maker is known locally as the “father of red chips” for his work in the 1990s to arrange a slew of Hong Kong listings of Chinese companies. Mr. Leung is well-connected with many of the city’s biggest business people, and has earlier referred to Mr. Li as his longtime supporter.
After leaving Citigroup, Mr. Leung led a consortium in 2006 to buy a major stake in Hong Kong’s dominant fixed-line operator PCCW Ltd. from its chairman Richard Li, son of Li Ka-shing. However, the younger Mr. Li turned down the offer after Mr. Leung disclosed that his father was involved in the planned acquisition.
In 2010, he was appointed vice-chairman and managing director of Mr. Yung’s Enterprise Holdings Ltd., a family venture set up by Larry Yung to invest in large-scale mainland projects after Mr. Yung resigned from Citic Pacific to take responsibility for unauthorized bets made by the company on the Australian dollar that eventually went sour.
For Toon Express, Mr. Leung said the company has signed agreements to broadcast the animation program in 17 languages over 52 Asian markets, but he declined to disclose the time frame. The animation is already available in Hong Kong and Taiwan.
Mr. Leung said he also plans to broaden Toon Express’ income sources by developing other lines of consumer products under the cartoon brand including books, toys, as well as songs and games that can be downloaded from the Internet and mobile phones.
Mr. Leung also said he would consider acquiring other cultural entertainment assets in China by raising funds through Imagi in the future. However, he declined to provide any financial projections on how the Toon Express acquisition would benefit Imagi.
Animation-industry experts said the main challenge in exporting characters based on a TV cartoon like “Pleasant Goat” is to make the story appealing to overseas consumers.
“Creating a smash hit out of any character takes time and perseverance, and sustaining the success is even harder,” said Masumi Oishi, an analyst at Ichiyoshi Research Institute in Tokyo, who covers Sanrio Co., the company behind Hello Kitty.
Kwai Bun, chief executive of ManyMany Creations, a Hong Kong-based creative-production house whose animation designs are used by many mainland Chinese companies, said it may take mainland Chinese animation artists years before they can catch up with the creativity and the techniques of their counterparts in the U.S and Japan.
“What appeals to Chinese people may not be that impressive to the overseas market,” said Mr. Kwai.