By Liana B. Baker and Saeed Azhar
NEW YORK/DUBAI (Reuters) - Saudi Arabia's sovereign wealth fund PIF is exploring the acquisition of up to a $700 million stake in Legendary Entertainment, the U.S. movie studio behind films such as "Jurassic World" and "Interstellar", according to people familiar with the matter.
A PIF deal with Legendary would test Hollywood's appetite for Saudi investments following widespread condemnation of Riyadh last month for its role in the killing of journalist Jamal Khashoggi.
A critic of Saudi ruler Crown Prince Mohammed bin Salman, Khashoggi was killed in Saudi Arabia’s Istanbul consulate on Oct. 2. The Saudi regime has denied that the Crown Prince ordered Khashoggi's assassination.
The deal could face resistance from some Legendary executives concerned about the impact a PIF investment would have on the studio's brand and its ability to attract top talent, according to the sources
Such pushback would be the latest illustration of how fallout from Khashoggi's death is weighing on the ability of Saudi Arabia, the world’s largest oil exporter, to diversify its investments abroad.
Hollywood talent agency Endeavor is close to terminating an agreed $400 million investment from PIF following Khashoggi's murder, over concerns about the reputational impact on its business, according to sources familiar with that matter.
PIF is eyeing a $500 million to $700 million investment in Legendary and is in talks to hire a financial adviser to assist it with its bid, the sources said.
Legendary has not had any formal discussions with PIF, according to sources familiar with Legendary's strategy.
Despite the hurdles presented by Khashoggi's killing, PIF believes Legendary's majority owner, China's Dalian Wanda Group, will be open to a deal, because it is under pressure from Beijing to divest overseas assets so it can trim its debt, according to the sources.
PIF's plans are in the early stages and there is no guarantee the fund will follow through with making a formal offer for Legendary, they said, asking not to be named because the matter is confidential.
PIF and Legendary declined to comment. Wanda and Endeavor did not respond to requests for comment.
Some Hollywood actors have already distanced themselves from Saudi Arabia. Gerard Butler, for example, cancelled his appearance at a screening of his new film "Hunter Killer" in Riyadh last month after Khashoggi's death.
SAUDI CINEMA PLANS
PIF's overtures to Hollywood, the world's filmmaking capital, come as Saudi Arabia has been seeking to open up to foreign films, as part of ambitious economic and social reforms pushed by Mohammed bin Salman.
Following the lifting of a ban on movie theatres last year, PIF signed deals with cinema operators such as AMC Entertainment Holdings <AMC.N>, in which Wanda is also an investor, to build theatres in Saudi Arabia. Several Hollywood stars paid promotional visits to the country, including John Travolta and Jason Momoa.
Saudi Arabia had some cinemas in the 1970s, but its powerful clerics closed them, reflecting rising Islamist influence throughout the Arab region at the time.
However, Saudi Arabians remained avid consumers of Western media and culture. Despite the cinema ban, Hollywood films and recent television series were widely watched in the country.
To serve a population of more than 32 million, most of whom are under the age of 30, Saudi Arabia wants to set up around 350 movie theatres with over 2,500 screens by 2030, which it hopes will attract nearly $1 billion in annual ticket sales.
Wanda paid $3.5 billion in early 2016 for Legendary Entertainment, which also produced the "Pacific Rim" and "The Great Wall" films and the upcoming live action Pokemon Detective Pikachu movie based on the video game characters.
Wanda, led by billionaire Wang Jianlin, once had dreams of developing a China-Hollywood film nexus, had a stake in Spanish football club Atletico Madrid and owned prime property developments in Sydney and London.
But Wanda is now focusing on core domestic businesses, notably its commercial property arm, financial unit, and Wanda Cinema Line Corp, China's largest cinema operator.
(Reporting by Liana B. Baker in New York and Saeed Azhar in Dubai; Additional reporting by Kane Wu in Hong Kong, editing by Bill Berkrot)