NEW YORK — Universal Pictures said Wednesday it had agreed to acquire 51% of October Films, giving the Gotham indie a deep-pocketed parent to help support its expansion. The acquisition had been anticipated (Daily Variety, April 18).
Financial details have not been disclosed but Universal is believed to be paying about $14 million in cash for its stake, with an option to buy out the remaining 49% over the next five years at a price that is dependent on future performance.
Most of the $14 million in cash, along with an increase in its bank credit line now being negotiated, will help finance a more aggressive business plan. October co-prexy John Schmidt said the company plans to increase the number of pictures it releases from about 10 to 12 currently to roughly 20 per year.
Schmidt added that October won’t change its fundamental business of acquiring specialized films, but it will do so “on a more aggressive basis.” Plans also call for October to start a production unit.
The company recently moved into production with “Kicked in the Head,” which is the only American film selected in the Director’s Fortnight in Cannes.
October will also move into foreign sales, he added, a long-held ambition. “This is a catalyst for doing that,” he added.
As part of the deal, Universal will get the domestic video and television rights on October’s releases.
Universal beat out Boston investors Bain Capital Partners in the bidding for October. Bain recently agreed to acquire video distributor Live Entertainment Inc. and was hoping to merge Live and October, using the October management team to revive Live’s business.
Schmidt refused comment on the Live situation but Wall Street sources said there were too many uncertainties related to the Live deal for October.
Given October’s ambitions, Bain had a tough sell. It has no background in Hollywood whereas Universal gives October the resources of a major studio. Sources said October felt more comfortable with Universal execs.
For Universal, the acquisition launches a specialty division with a recognizable brand name, something it hasn’t had since Polygram bought out Gramercy Pictures.
“It was a more advantageous position for us to acquire a going concern than to create a startup,” said Universal Pictures chairman Casey Silver, who negotiated the deal for the studio with Universal Pictures chief operating officer Chris McGurk. “It made more sense for us in many ways. Their track record in bringing in quality product speaks for itself.”
October’s recent releases include “Secrets & Lies” and “Breaking the Waves,” both of which were recognized with nominations at this year’s Academy Awards.
“We really trying to diversify and expand our portfolio product,” said McGurk. “We think we found three execs who really have complementary skill sets and are outstanding in their arena.”
While the studio will buy control, October is retaining some autonomy. It will maintain its New York headquarters and two of the outside shareholders — Allen & Co. and Siegler, Collery and Co. — will retain seats on October’s board. Allen’s rep on the board is Allen director John Josephson and Siegler’s rep is its president, Gary Siegler.
Allen and Siegler between them will be diluted down from 50% to 30%, sources said. Other shareholders include the management group of Schmidt, Amir Malin and Bingham Ray, and hedge fund manager Michael Steinhardt.
Meanwhile, Bain is progressing with its acquisition of Live. The video distrib filed copies of the definitive agreement with the SEC Wednesday, revealing that Bain is putting in $15 million in equity into the deal along with Chicago investor Alan Gordon.
As expected, Chase Manhattan Bank has agreed to provide $120 million in bank financing for the deal, the filing says. And Bain’s rival for the acquisition, vulture fund Canyon Partners, is putting in $15 million in subordinated debt, the filing says.
Bain appears to be in control of the deal, however. Live says it is being acquired by a Delaware company Film Holdings Co., whose corporate officers are two execs from Bain in Boston.
The filing says Live’s board will resign when the merger closes and will be replaced by directors designated by Bain. Calls to Bain’s offices in Boston were not returned.