×

Rhythm & Hues Bankruptcy Sale: ‘Stalking Horse’ Bid Expected Friday

We’re hearing that the “stalking horsebid for bankrupt Rhythm & Hues Studios is due tomorrow. That bid will set the floor for the selling price.

Per bankruptcy court filings, further bids would have to be at least $250,000 above the stalking horse bid. Should another buyer outbid the stalking horse at auction, the stalking horse bidder will get a “break-up fee” of 1.5% of the selling price, capped at $150,000. To reach that cap, the sale price would have to be at least $10 million. That seems likely.

Tomorrow’s expedited hearing is meant to set the stage for a March 19 auction. We hear there are 8-10 interested buyers.  R&H isn’t encumbered with debt and even the studios who’ve had to bail it out have called it a basically well-run company, and it has a commercials business. R&H has said in court documents it must be sold by mid-March for its operations to remain viable.

Court documents reveal some interesting facts and figures:

About R&H’s overseas facilities:

The India, Canada and Taiwan facilities are all owned by separate foreign entities, each of which is in turn 100% owned and controlled by the  Company. The Malaysia entity is owned by a sister company, not directly owned by the Company, but instead by the same shareholders which own the equity of the Company.

…. The Company must also preserve its international operations. Since opening its Vancouver office in September of 2011, it has now become widely known that the Company has a facility in a government-subsidized location, and Company has been included in considerably more requests for bids as a result. Furthermore, because the Company’s Asian facilities are very efficient economically due to lower labor costs, the Company will be able to further lower costs and increase its profits as it increases the amount of the work it does in Asia. The Company’s viability in the international market is crucial to the going concern value of Company.

Emphasis added. This sounds like confirmation that R&H is planning to shift far more work from California to Asia than it has done in the past, perhaps as much as 80% of its total volume.

97% of R&H’s gross revenues over the last three years came from Fox, Universal and Warner Bros. How much revenue is that?

The gross revenues for 2009 to 2011 were $108.9 million, $86.7 million and $121.4 million, respectively. Revenue in 2012 was only $95.0 million, leading to the net loss of approximately $22.5 million

The Company’s revenue, in turn, is highly correlated to feature production and release schedules of the major Hollywood studios. As such, revenue generation can be, at times, difficult to project. Also, with a high level of fixed overhead, significant fluctuations in feature film production at Hollywood studios have a direct impact on the Company’s profitability. The decline in revenue in 2012 was partly due to a decrease in feature film work, driven predominately by a slight decrease in film production at Fox and Universal (historically two of the Company’s largest customers).

Emphasis added. “A slight decrease in film production” at two studios was enough to tip a major vfx company into bankruptcy? Yikes.

And, not surprisingly, there’s this:

The Debtor believes that it will be very challenging to get new or additional work from clients while it is still in chapter 11, meaning that the Debtor will have no new revenue to offset its current overhead until the Debtor consummates a sale transaction. A sale is therefore needed to create stability, and allow the Debtor to retain both its creative and production team and the business of its largest customers. Consummating the sale as soon as possible is absolutely essential for preserving continuity of the Company’s knowledge base, it reputation for artistic excellence, and value for creditors.

Without an infusion of cash, R&H is anticipating it will have to “substantially” reduce its workforce once it delivers its current project to Universal.

Prime Focus tried to acquire R&H before the Chapter 11 filing but PF posted a net loss of its own in the quarter that ended in December: Rs 63.28 crore, or about USD$11.6 million.

Popular on Variety

More Digital

  • Discovery Launching Free Streaming Service Dplay

    Discovery Launching Free Streaming Service Dplay in the U.K. and Ireland

    Discovery is making a free-streaming play in the U.K. and Ireland with the launch of Dplay. The ad-supported service launches this week. It will be programmed with content from Discovery’s bouquet of free-TV channels in the U.K., which includes Quest, Food Network, and former UKTV brands Really and Home. The lineup of launch titles includes: [...]

  • Doug Scott - Twitch

    Twitch Recruits Zynga's Doug Scott as Chief Marketing Officer

    Doug Scott is leaving as game company Zynga’s marketing boss to become Twitch’s CMO. Scott assumes the CMO role at Twitch after previous chief marketing officer Kate Jhaveri exited this summer to become the NBA’s top marketing exec. News of Scott’s hire comes less than a month after Twitch launched a redesigned logo and site, [...]

  • Carter Hansen - VidCon

    VidCon Hires Ex-AwesomenessTV Exec Carter Hansen to Head Conference Programming

    VidCon hired Carter Hansen, a founding executive at AwesomenessTV, as VP of programming to oversee conference programming and content for the internet-video events producer. In the newly created role, Hansen reports to VidCon GM Jim Louderback and will be based in Viacom’s Hollywood office. As part of overseeing programming worldwide for VidCon’s community, creator and [...]

  • The Boys Amazon Prime

    Nielsen Adds Amazon Prime Video to SVOD Measurement, With Limitations

    After two years of measuring Netflix viewing, Nielsen has now added Amazon Prime Video to the mix of subscription-streaming services it tracks — and with the same set of limitations. Nielsen’s SVOD Content Ratings originally launched in October 2017 with Netflix. According to the research firm, the addition of Amazon Prime Video measurement will let [...]

  • Gavel Court Placeholder

    Netflix Movie Scammer Admits to Defrauding Investors Out of $14 Million

    A California man has admitted to defrauding investment groups — nabbing $14 million — by falsely claiming the money would be used to produce a feature film for Netflix. On Oct. 18, Adam Joiner, 41, of Manhattan Beach, Calif., pleaded guilty to one count of wire fraud in U.S. District Court, according to federal authorities. [...]

More From Our Brands

Access exclusive content