Legendary Pictures, Warner Bros. Likely to Split (EXCLUSIVE)

Eight years after pairing up on a string of blockbusters, the two companies could part ways by the end of the year.

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Legendary Entertainment is poised to leave the Warner Bros. fold by the end of the year and set up shop at a rival studio, unless the parties can mend their frayed relationship and come to terms on a new deal, which sources describe as “unlikely” at this juncture.

If the companies fail to extend their current co-production and distribution pact when they formally sit down to negotiate in the next month or so, it would spell the end to one of Hollywood’s most successful partnerships. The companies have been in business together for the past eight years.

Tensions over their unresolved issues come at an awkward time, just as Warner Bros. is getting ready to release three of the partners’ high-profile summer titles, “Pacific Rim,” “Man of Steel” and “Hangover Part III.” All three offerings are expected to generate a massive box office haul for both sides, which are obligated to continue co-funding and releasing pictures that are greenlit through the end of 2013. That includes the upcoming sequel “300: Rise of an Empire” and “The Seventh Son” and next year’s release “Godzilla,” which is currently in production.

Their most recent collaboration “42,” a moderately budgeted $38 million biopic, is doing solid business ($80 million to date), while their collaboration with New Line Cinema this spring, “Jack The Giant Slayer,” was a big money loser.

Positioning his company for a potential divorce with Warner Bros., Legendary chairman Thomas Tull has entertained conversations with a number of potential studio suitors, including Universal Pictures, Sony Pictures and 20th Century Fox. Legendary is obligated to give Warner the first right of negotiation.

After producing an enviable number of blockbusters that included “Batman Begins” and “The Dark Knight” and the “Hangover” series, the partnership between Legendary and Warner has grown strained. Much has changed for both since the partnership’s infancy and insiders say that Tull’s more hands-on approach to establishing Legendary’s own brand has added to the tensions with WB, particularly with Jeff Robinov, president of the motion pictures group. The Legendary relationship lost one of its stewards with 2011’s forced departure of Warner’s studio chief Alan Horn.

WB’s recently anointed chairman Kevin Tsujihara has met with Tull to try and smooths relations, but so far to little or no avail, according to sources close to the situation.

Tsujihara must balance Legendary’s desire to grow and manage its own brand with the needs of his own studio. Going forward, Tull wants even more say in the marketing and release dates of the movies in which Legendary is involved, which may not set well with WB executives.

By mid-to-late summer, Hollywood should know whether Legendary and Warner Bros. still need each other.

While sources close to the matter stress that there is no clear frontrunner amongst rival studios should the partnership with Warner end, many industry insiders are betting that Legendary and Universal wind up together. Legendary’s films could easily translate into theme park attractions at Universal Studios properties around the world and could be cross promoted across all of NBCUniversal’s media assets, including NBC. Universal will need to replace the massive hole that will be left once its outside production funding from hedge fund Elliott Management dries up at the end of the year.

Legendary and Warner became bedfellows in 2005 at a time when the Burbank studio needed money to bankroll its slate of tentpoles and Tull had a lot of it to offer.

For Tull, a Warner partnership offered him the opportunity to make the kind of films he wanted to see as a fan boy of superhero, sci-fi, fantasy fare. The first two he backed were big screen reboots of Batman and Superman.

Through next year’s “Godzilla,” Legendary and Warner have co-produced 32 films since 2005. The biggest box office successes have been “The Dark Knight,” “The Dark Knight Rises,” “300” and “Inception,” while “Jonah Hex,” “The Ant Bully” and “Sucker Punch” badly misfired.

While the relationship has been lucrative, Legendary’s success has to some extent come at Warner Bros.’ expense.

■ Legendary has the ability to cherry pick from Warner Bros.’ best movies — which stands in stark contrast to other co-financing arrangements in Hollywood where passive financiers typically invest in all or almost all of the titles on the studio’s slate without question. Sony and Universal allowed their investors to have a say in the films they chose, but the studios’ four slate deals have been mildly successful to disastrous. While a fanboy, Tull doesn’t say yes to any project offered him: He passed on “Green Lantern,” for example, which wound up being a prescient move.

■ Tull’s insistence on being an active producer instead of a passive financier has made waves at Warner. Tull tends to put his money behind films he can help shape creatively — from the way the scripts are written to the design of the marketing campaigns. He and his team also give input on release dates, the choice of consumer products and how the studio interacts with potential moviegoers via social media, irking some Warner execs at various divisions, including Robinov, who would prefer a more silent partner, according to sources.

■ Legendary and Warner have also privately complained about one side grabbing too much credit for what works when a movie hits.

■ And Legendary has capitalized on Warner Bros.’ success by establishing itself as a brand for high-profile genre fare, with strong talent relationships with directors Christopher Nolan, Todd Phillips and Guillermo del Toro. That was only elevated after Legendary purchased Chris Hardwick’s Nerdist Industries and launched a comic book division, which is still looking to gain traction.

Not helping matters, what initially brought the two companies together in 2005 may no longer be valid going forward.

Warner Bros. is no longer as dependent on Legendary coin now that the studio’s other co-financing partner Village Roadshow Pictures is flush with cash again after a $1.2 billion refinancing last year. Warner also is looking to raise additional capital, working with Bank of America and Merill Lynch for several hundred million dollars. But it’s unclear just how far along that process is, or how much Warner Bros. would really need to rely on outside financing if one of its key partners left.

Meanwhile, Legendary has begun to bankroll more of its own slate of internally developed projects through $443 million of equity it raised in December and a $700 million credit facility, secured in 2011. Legendary was the sole financier of “42” and “Seventh Son” and funded 75% of the budget of “Pacific Rim” and “Godzilla.” The company also has a slew of other homegrown projects, among them “Mass Effect,” “Warcraft,” “The Great Wall,” “Murder Mysteries” and “Hot Wheels” — all films boasting budgets of over $100 million.

In the end, Legendary could still stay put at Warner Bros. Tsujihara will presumably make further attempts to make Tull feel more welcome. And, earlier this year, Time Warner chairman and CEO Jeff Bewkes told analysts there was “problem solving going on” between the two companies.

Legendary and Warner Bros. declined to comment.