One Unlikely Bidder for Relativity: Ryan Kavanaugh?

One Unlikely Bidder Relativity: Ryan Kavanaugh?

A rapid sale of Relativity Media or its pieces is expected to draw interest from a number of potential strategic buyers, though the proceeds are unlikely to come anywhere close to satisfying a long list of lenders and other creditors, experts said. Among the most surprising potential bidders for the company that Ryan Kavanaugh founded and then ran off the rails: Kavanaugh himself.

Even as Thursday’s bankruptcy filing seemed to loosen the entrepreneur’s grip on the entertainment company, sources said the Relativity CEO has been talking with potential partners about making a bid to hold on to some or all of Relativity. Kavanaugh has declined to comment on the company’s financial crisis,  though he spoke in a prepared statement Thursday as if he expected to remain in control of 11-year-old Relativity.

“We remain firmly committed to our film and television businesses,” Kavanaugh said. “The actions we are announcing today will protect our valuable franchise and allow us to emerge as a stronger, more focused company.”

Kavanaugh has pulled off multiple refinancings and partnerships during his time atop Relativity. But members of the investor community said they doubted that Kavanaugh would be able to engineer yet another rise from the precipice.

“By now, with all the lawsuits and the trail of disillusioned partners, would anyone want to touch a deal with him? I doubt it,” said one seasoned Hollywood investor, who declined to be named as his company eyed Relativity as an acquisition target. “But there is a fool born every minute.”

Thursday’s Chapter 11 filing in U.S. Bankruptcy Court in New York does not include several subsidiaries — Relativity Sports, an agency that represents pro athletes; Relativity Education, a school offering bachelor’s degrees in media fields; and a Relativity film marketing and distribution joint venture with EuropaCorp.

The most significant assets left behind are the core film and television units. A checklist with the Relativity filing valued its assets overall at somewhere between $100 million and $500 million. One hedge fund principal who has studied the company in the past and is now considering a bid on the distressed company pegged the value at between $125 million to $150 million. “There’s not a lot of value there,” said another potential bidder.

Senior secured debt in the company, alone, is believed to stand at about $300 million. There are also second-tier lenders waiting to be satisfied and a long list of vendors waiting for payment of $70 million or more in bills.

The most valuable property, by consensus, is Relativity’s TV operation. Headed by Tom Forman, Relativity Television has made its biggest mark in reality programming. It has produced “Catfish: The TV Show” (MTV), “The Great Food Truck Race” (Food Network) and “The American Bible Challenge” (Game Show Network), among other programs.

Among those expected to kick the tires on the TV unit are other reality TV makers like ITV, Bunim/Murray and onetime “American Idol” host Ryan Seacrest. Lionsgate is also expected to look at the division, said an individual close to the company’s management.

Another interested party could be Toronto-based the Catalyst Capital Group, which already showed an interest in Relativity with a reported $120 million debt acquisition in recent weeks. That stake was quickly bought out by New York-based Anchorage Capital, now believed to be one of Relativity’s senior debt holders and thus a beneficiary of the auction.

But Catalyst could make another run at Relativity, especially given that it already has a major investment in television through Sonar Entertainment (formerly RHI Entertainment), an international producer and distributor of TV programming. It bills itself as the world’s largest creator of made-for-TV movies and miniseries.

Relativity’s beleaguered film operation could be a tougher sell. The outfit has never produced a true blockbuster and it never prospered, often left picking up films after other companies had turned up their noses. When it separated in 2011 from its principal financial backer, Elliott Management, the giant hedge fund took possession of the bulk of Relativity’s film library. That arguably sapped the now-bankrupt firm of hundreds of millions of dollars in annual revenue.

MGM, a previous bankruptcy casualty that reorganized in 2010, will be among those to take a look at the Relativity film operation (and possibly other assets), along with upstart mini-studio STX Entertainment, according to two people familiar with the matter.

A corporation called RM Bidder will be established to take control of the bulk of Relativity’s assets. That firm will set the minimum bid in an auction that will be overseen by Blackstone Group and FTI Consulting. The process will be overseen by the bankruptcy court in Manhattan. Relativity says it expects the process to be complete in early October.

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  1. Candice says:

    You have to make GOOD movies to make a Profit.

  2. holy moly says:

    ANYONE AT RELATIVITY OR IN THE INDUSTRY CAN TELL YOU THAT THE REAL REASON FOR RELATIVITY’S MELTDOWN IS DUE TO RYAN AND TUCKER. NEITHER OF THEM, ESPECIALLY TUCKER, KNOWS HOW TO MANAGE A COMPANY OR PICK/MAKE MOVIES. NO MATTER HOW MUCH THEY WANT TO BLAME THE DOWNFALL OF THE COMPANY ON EXPANSION INTO OTHER BUSINESSES LIKE FASHION, THE REAL REASON IS SIMPLE; THESE GUYS MAKE BAD MOVIES AND DON’T KNOW HOW TO RUN A COMPANY.

  3. Angela says:

    So let me get this straight: You can borrow a few hundred million dollars from a bunch of rubes, telling them that by using game theory you can guarantee them a minimum rate of return on a slate of films provided those titles share the characteristics of your secret stochastic model. You borrow more money to pay off the first wave of money you borrowed while paying yourself a disproportionately large salary and bonus and occasionally making a bad movie or two, for which you also pay yourself a hefty fee for executive producing. You borrow more money to pay off the second wave of lenders while continuing to pay yourself wildly and maybe even have the company cover a chunk of your “expenses” (helicopters and such). By the time your company has an actual library of titles and a billion dollars of debt, you lay off half your staff, declare bankruptcy, and buy the assets at pennies on the dollar using some of the millions of dollars you paid yourself over the past seven years.

  4. Michael says:

    As a top agent, I remember offering Ryan’s office a first-look peek at an extremely hot movie. The dick-head at his office hung up the phone – not kidding. Good riddance man.

    • TM says:

      Maybe so, Michael. But at the same time this is how many top agents deal with producers or directors, let alone actors who are not in the top 10 of the moment.

    • Jena says:

      LOL, Michael…happens a lot in Hollywood. People mess (really want to use another 4-letter word but won’t) with people they want to mess with, often bypassing or overlooking properties that could make their career/company. The arrogance in Hollywood is daunting. It’s no wonder that mostly those with the “right connections” make it. We pitched a four-quadrant franchise property to a high-level exec in one of the Relativity divisions…the assistant was nice but the guy never had the courtesy of even a response note. Kept us going for months waiting for the feedback. No class. Karma is a bitch!

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