Mandalay on move

Rich Lions Gate deal may spur Sony exit

Canada’s Lions Gate Entertainment Corp. is in serious negotiations to become the primary equity partner in Mandalay Entertainment, providing Peter Guber’s company with between $300 million and $400 million in cash and bank credit lines.

The cash infusion for Mandalay will position the Guber entity to leave Sony Pictures Entertainment and join Warner Bros., Paramount or Universal, all of which have shown interest in adding Mandalay product to their distribution pipelines.

The talks are being spearheaded for Lions Gate by film producer Peter Strauss, whose Movie Group outfit is also close to being absorbed by the hungry Lions.

“We have had a successful relationship with Mandalay in television, and we are now exploring other possibilities of association, which include examinations of all aspects of Mandalay’s business,” said Strauss. “But there is absolutely nothing that has been concluded.”

Sources close to the deal said that Lions Gate, which already owns Mandalay Television, will provide between $100 million and $150 million in equity financing for Mandalay as part of a proposed five-year business plan.

Mandalay, backed by Lions Gate, would then extend that financing through an additional $200 million to $300 million from two separate Canadian banks, one of which is the Royal Bank of Canada.

Developing deal

The deal is expected to be instituted in waves over the next six months.

Lions Gate’s involvement will cause the restructuring of nearly all of Mandalay’s foreign output deals in Australia, Italy, Korea, Spain, the U.K., Germany and Japan. However, all the current partners are likely to remain distributors in their respective territories. The foreign deals are handled by Patrick Wachsberger’s Summit Entertainment.

Currently, Mandalay has an overall deal with Sony that gives the studio foreign rights to roughly half of Mandalay’s features, which are determined on a picture-by-picture basis.

Window of opportunity

Sony, however, has given Mandalay a 90-day window to explore other studio deals. Sources said Sony would not be unhappy to let the company depart. Mandalay’s Sony deal was already restructured once at the behest of Tokyo-based Sony Corp. prexy Nobuyuki Idei, who was displeased by the arrangement with Guber, the former chairman of SPE.

New Regency model

Mandalay has already held discussions with Warner Bros. about shifting locales. Mandalay and Lions Gate are looking to re-create the model pioneered by Arnon Milchan’s New Regency Prods. — which, ironically, is moving from WB to a new deal at 20th Century Fox.

Interest from Universal and Paramount was sparked by the entry of Lions Gate into the ring.

If Mandalay successfully shifts studios, the company is expected to fully finance some pictures and co-finance others, much like New Regency. The chosen studio would then handle domestic distribution for a fee. It was unclear whether Mandalay would also pick up prints and advertising costs.

Vancouver-based Lions Gate is headed by former investment banker Frank Giustra, who has publicly declared on many occasions his desire to team up with an established, studio-level Hollywood company. Lions Gate owns specialist film distrib Cinepix Film Properties (renamed Lions Gate Films) and Lions Gate Studios, Canada’s largest studio facility.

Aside from film, television and legit theater, Mandalay’s other interests include Mandalay Sports Enterprises (a joint venture with Hank and Ken Stickney), which owns several baseball teams and one hockey squad.

Giustra resigned from finance firm Yorkton Securities last year to concentrate on expanding Lions Gate. The company went public late last year and has thus far raised $120 million in equity financing.

Mandalay execs would not discuss the arrangement. Giustra and Sony were not available for comment.