The deal, the largest overseas acquisition by a privately held Chinese company, reflects the warming ties between the U.S. and Chinese movie industries after China agreed in February to open its cinemas to more American films.

The purchase will mark Wanda's first investment outside of China and its first foray into the United States and Canada, the world's biggest film market with ticket sales of $10.2 billion. Chinese cinemas trailed with $2.1 billion in revenue last year.

"For Wanda, the deal may allow it to secure more Hollywood movies for distribution in China in the long run," said Steve Chow, an analyst with Kingsway Research in Hong Kong.

"Cinema operation is a growing business in China as people are willing to spend on entertainment as their income increases. In the U.S., it is a defensive business which generates a relatively steady income," Chow said.

AMC and Wanda had held off-and-on discussions about a possible deal more than a year ago. Talks grew serious after AMC, the world's largest operator of IMAX screens, cancelled its plans to go public, according to media reports.

The acquisition by Wanda, controlled by billionaire Wang Jianlin, will include about $1.9 billion of net debt, a source with knowledge of the matter said. AMC is partly owned by Apollo Investment Fund and Carlyle Group.

"Wanda has also made a commitment to invest up to $500 million for operations," Wang, who is also Wanda's chief executive, told reporters in Beijing on Monday.

"We will continue to invest cash after the merger. The cash will be used for updating hardware and reducing debt," Wang said.

Wanda, which has interests in commercial properties, luxury hotels, tourism and department stores, holds $35 billion in assets, with annual revenue reaching $16.7 billion.

The deal also highlights the rising appetite of Chinese private sector companies for overseas assets. China's state owned enterprises have so far dominated large global acquisitions.

Earlier this year, privately owned Sany heavy Industry, controlled by China's richest man Liang Wengen, agreed to buy Germany pump maker Putzmeister for 360 million euros ($472 million).

LANDMARK DEAL

The deal will surpass Chinese computer maker Lenovo Group Ltd's $1.75 billion purchase of IBM's personal computing business in 2004, according to Thomson Reuters data.

James Roy, a senior analyst with Shanghai-based China Market Researchers, described Wanda's move into international cinema operations as "very significant."

"AMC has a very established worldwide network of cinema and will give them an established brand," Roy said. "It is a good opportunity for the acquiring company to gain knowhow and potentially to leverage that in their home market."

Wanda operates 86 theatres with 730 screens.

There could be more Chinese films shown through AMC following the acquisition, said Craig Ramsey, AMC's executive vice president and chief financial officer.

"We serve a diverse audience," Ramsey said. "There's a lot of Hispanic, a lot of African American, there's a lot of Asian. They like western products but they also like their own home-created products."

In February, DreamWorks Animation announced a landmark deal to build a production studio in Shanghai.

Last week, News Corp agreed to buy nearly 20 percent of Chinese film distributor and theatre operator Bona Film Group Ltd for undisclosed terms.

AMC'S LOSSES

Citigroup advised AMC in the deal, while Ernst & Young was Wanda's advisor. Citigroup is now No. 4 in the Asia-Pacific ex-Japan M&A league table ranking so far this year, compared with No. 10 a year earlier, according to Thomson Reuters data.

In its due diligence, Wanda considered AMC's overall losses in 2010 and 2011.

"According to our evaluations, the reason for the losses is not that AMC management has problems," he said. "The main problem is it has too high a debt ratio. So we believe after the merger, things will look good."

AMC, especially in 2011, faced high fixed costs of maintaining so many theatres and a lack of hits from Hollywood, the main source of the company's films, Chief Executive Gerry Lopez said.

But the films "The Lorax" and "The Hunger Games" boosted AMC's revenue in March, the company's best March ever, while the blockbuster "The Avengers" made for a robust May, he said.

As of the end of last year, the second-biggest U.S. cinema chain operated 347 theatres with 5,048 screens. Revenues reached $2.5 billion.

Tennessee-based Regal Entertainment Group, the largest, operated 527 theatres with 6,614 screens. Sales totaled $2.7 billion.

AMC's management team at its Kansas City, Missouri headquarters and the company's 18,500 employees will not be affected by the deal.

The movie chain is owned by an investment group that includes Bain Capital, CCMP Capital Advisors and Spectrum Equity Capital.