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Legendary ready for the next step

With a busy slate and fanboy cachet, Thomas Tull's production company sets stage for 2013 financial moves

With its name on six major tentpoles next year and “The Dark Knight Rises” (which it co-financed) starting its global blitz, Legendary Entertainment is ready to expand in 2013, with Thomas Tull and his company’s board members considering several growth strategies.

While no plans are officially in place for an initial public offering, sources tell Variety the financial community is stirring over the likelihood of one sometime next year, as well as additional acquisitions after Legendary purchased Nerdist Industries this month.

Any moves, of course, are contingent upon the health of the economy and market conditions.

Should the IPO happen, Legendary would become the first major Hollywood player to start trading on Wall Street since DreamWorks Animation in 2004 and Pixar Animation Studios in 1995. Legendary could secure a valuation of up to $2 billion through a stock offering, individuals in the financial community tell Variety.

Spokespeople for Legendary declined to comment. But Tull, long considered a cautious and financially prudent executive, is eager to turn Legendary into a Disney for fanboys.

Next year, Warner Bros. is distributing “Jack the Giant Killer,” “The Hangover 3,” “Pacific Rim,” “Man of Steel,” “300: The Battle of Artemisia” and “Seventh Son,” along with the small baseball drama “42,” starring Harrison Ford — all of which Legendary either co-financed and co-produced or fully funded.

The company has scored with the revival of Warner Bros.’ Batman franchise, “Superman Returns” and “The Man of Steel,” “Clash of the Titans” and its sequel, as well as comedies like “The Hangover” franchise and Guillermo del Toro’s giant monsters vs. robots mashup “Pacific Rim,” Legendary’s first fully funded tentpole. It also has in the works films based on the games “Mass Effect” and “World of Warcraft.”

The company isn’t expected to be affected by the kinds of issues that DWA and Pixar (now owned by Disney) experienced in their IPOs; while the toon studios’ stocks seesawed with only one or two films per year on their rosters, Legendary’s broader slate of live-action films should insulate it somewhat from the ups and downs of box office returns on any particular film.

Legendary would likely use the coin it raises from an IPO to expand into television and perhaps videogames, while growing a consumer products business around its tentpoles. It already has hired Striker Entertainment to develop merchandise around “Pacific Rim.”

Company launched comicbook arm Legendary Comics in 2010. Its second book, “The Tower Chronicles” from Matt Wagner and Simon Bisley, bows in September, with Mark Waid, Shane Davis and Max Brooks’ “Shadow Walk” out next year. It also acquired Chris Hardwick and Peter Levin’s Nerdist before Comic-Con to grow its digital business.

But Legendary could use any new IPO money to finance more films on its own, including “Mass Effect,” “Here There Be Monsters,” based on an original idea by Tull, as well as “Godzilla.”

Company also has grown its presence overseas through new banner Legendary East, which is moving forward with “The Great Wall” as a co-production in China. Ed Zwick is helming the historical actioner starring Henry Cavill, although the project is not yet greenlit and is seeking a regional partner.

Legendary’s financial deal and distribution arrangement with Warner Bros. expires at the end of 2013, although many expect the two to reup — studio also will distrib pics Legendary is producing in China through Legendary East. (WB also has co-financing arrangements with Village Roadshow and Alcon).

Since coming to Hollywood in 2005, Tull has often stayed in the shadows, but took center stage at Comic-Con this month to introduce “Pacific Rim” and test footage for “Godzilla” to a packed house of more than 6,000 at the San Diego Convention Center; both were among the most enthusiastically received presentations of the weekend. Last year, Legendary began building its brand with fanboys in San Diego with a smaller, but still packed, panel to discuss future projects like “Mass Effect,” “Rim,” “Son” and “Paradise Lost” (the latter was grounded for budget reasons).

Should Legendary move forward with the IPO, financial analysts will examine its history and management structure, as well as the value of its film investments to date. In April, the company raised $275 million in debt and equity, while the company secured $700 million in new financing last year. And the company is expected to announce a new chief financial officer to replace Larry Clark, who has been Legendary’s CFO since 2004.

Future films, too, would come under consideration, but attaching value to those is much harder — banks, for example, will only project a film’s value in the weeks after theatrical release. Investors generally consider film a volatile and unpredictable asset class, one reason why so few production companies have gone public. And there’s often a large discrepancy between a company’s revenue streams and its accounting: Profits from a hit movie may not show up in a studio’s bank account until weeks later because of marketing, production and other costs that pile up months before a opening day.

That means even a hit film like “Avatar” could show a loss in its first week of release — a difficult thing to explain to investors unseasoned in show business economics. But Legendary’s slate of big-budget commercial tentpoles should help attract investors.

Despite the stumble of Facebook’s IPO earlier this year, 68 companies are expected to raise $14.4 billion through public offerings later this year, according to research firm Dealogic, down from 135 that sought $23.6 billion this time in 2011.

DreamWorks Animation raised $812 million when it went public in 2004. It had already released the boffo “Shrek 2” and launched its IPO right before it started raking in cash from the pic’s DVD sales. In 1995, Pixar went public just one week after the release of its first film, “Toy Story.” The move raised $140 million and marked the largest IPO that year.

Legendary is mulling its future moves, including a potential IPO. It has yet to hire lawyers or enlist a bank to draft IPO paperwork — which it can file the same year it goes public. It could still choose not to move forward with the stock offering should the economy take a dive, but analysts say that given its strong slate, 2013 would be an optimal year for Legendary to go public.

“If I were doing an IPO, I’d want to do it when the moment of the public’s anticipation of my film slate was at its height,” said Lindsay Conner, a partner in entertainment and media at Manatt, Phelps & Phillips. “You want people to be excited about the results, about the potential results. If you do the IPO after the movies are already in release, then the market and skeptics will decide what revenues are coming and when. If you do the IPO before the releases, you have all the anticipation and excitement going for you.”

Still, publicly-traded production companies need a steady string of hits to churn out the kind of quarterly earnings results that investors want. And going public isn’t the right move for everyone. Brian Grazer and Ron Howard’s Imagine Entertainment was publicly traded from 1986-1993 before the duo took it private again.

“Even if a company is successful by Hollywood standards, production companies have big quarter-to-quarter earnings swings, which is not loved by Wall Street,” Conner told Variety. “Wall Street loves stable quarter-to-quarter earnings.”

But, Conner points out, Legendary has another carrot to dangle to investors: Hollywood itself.

“The public loves showbiz,” Conner said. “The IPO is an opportunity to own a piece of Hollywood, and you get a premium for that.”

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