November 5, 2010 / 2:55 AM / 8 years ago

Disney signs agreement for Shanghai theme park

SHANGHAI (Reuters) - Walt Disney Co (DIS.N) has signed an agreement with a Shanghai company for the establishment of a Disneyland theme park in the city, bringing its long-planned park in mainland China closer to fruition.

The main gate of entertainment giant Walt Disney Co. is pictured in Burbank, California May 5, 2009. REUTERS/Fred Prouser

The deal was reached with Shanghai Shendi Group, which was specifically created for the development of the Disneyland project, the official Xinhua news agency said on Friday.

Disney confirmed the Xinhua report and said it was awaiting final approval from China’s central government regarding the incorporation of the related joint venture companies and the completion of regulatory procedures.

“For quite some time, we have been involved in discussions with the Shanghai government about building a Disney theme park. We can confirm the statement from the Shanghai government that we have taken another step forward in the approval process,” a Disney spokeswoman said in an emailed statement to Reuters.

Shanghai’s Disneyland is expected to cover about 4 square kilometers (1.5 square miles) and cost about 25 billion yuan ($3.75 billion), Xinhua said. Following the announcement, speculation about possible construction contracts helped lift shares of several building companies, including Shanghai Pudong Road and Bridge Construction Co (600170.SS), which rose 9 percent.

It was not clear what the ownership structure of the park would be like, but state media reported last year that an investment company controlled by the Shanghai municipal government would own a majority stake in the park.

Disney itself gave no further details.

Disney’s foray into the China market has been mixed so far. Its Hong Kong Disneyland park, which opened to great fanfare, reported a loss last year and has at times struggled to attract as many visitors as hoped. Disney runs two other parks outside the United States, in Paris and Tokyo.

Disney has long sought to build in Shanghai, a wealthy city of about 20 million people that is ringed by the prosperous Yangtze River Delta, home to tens of millions more potential visitors.

For Disney and other media companies, China’s 1.4 billion residents, and its growing middle class and powerful economy, have made it a compelling investment spot. But it also has proven to be a difficult place to conduct business, with the government hesitant to allow too much foreign influence in the highly sensitive sectors of media and popular culture.

That has caused a number of setbacks. In August, for instance, News Corp (NWSA.O) announced plans to sell control of its Chinese TV channels [ID:nTOE678080]. Google Inc (GOOG.O) earlier this year faced off against Beijing in a dispute over Web censorship.

For Disney, building the park in Shanghai caps years of on-and-off talks with Chinese authorities. A deal was finally outlined a year ago, before the News Corp and Google fallout, and was seen as a springboard for Disney to market and promote the rest of the entertainment business, from merchandise to film and television.

Disney’s Parks and Resorts division, which has roots stretching back to the early 1950s, accounts for roughly one-quarter of the company’s sales. But the division has faced headwinds in recent quarters as the economic downturn has hurt attendance and hotel occupancy, particularly at its U.S. resorts.

Shares of Disney were up 15 cents at $37.18 in morning trade on the New York Stock Exchange.

Additional reporting by Sally Huang in Beijing and Paul Thomasch in New York; Editing by Jason Subler and John Wallace

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