Relativity Media has been put up for a bankruptcy auction that the company claims will draw excitement and lively bidding, but bankers, hedge fund operators and potential bidders who have examined the failed mini-studio said they expect the auction to fall flat.
Two bankers and a hedge fund manager who are familiar with the company said they expect no one will bid more than the $250 million stalking horse bid already put forward by senior creditors who pushed for the sale. While there is some interest from strategic buyers in Relativity’s television assets, a movie studio with high overhead and a paltry library is seen as a potential liability.
“There is no there there,” said one banker who had studied Relativity. “I don’t think at the end of the day anyone will match the $250 million stalking horse bid. There is something in the TV. But there is no film library to speak of, and it could cost more to get upcoming films released than they are worth. No one is excited about this.”
That view diverges sharply with the pitch made last week by Relativity’s chief restructuring officer. Brian Kushner, who is a senior managing director at FTI Consulting, blamed Relativity’s problems on an excess of debt but said the value of “synergies” between its television and film operations are still “impressive.” Added Kushner: “We’re expecting an exciting bidding process and a lively auction.”
Another investment banker agreed with the bleaker assessment, though, saying, “Really just the TV business has any value at all.” He predicted that the company that made movies like “The Fighter” and “Act of Valor” and the TV show “Limitless” (a spinoff of the Bradley Cooper action thriller) “would get nowhere near the credit-bid price.” A hedge fund manager also predicted that the $250 million stalking horse bid — put forward by senior lenders Luxor Capital, Anchorage Capital and Falcon Investment Advisors — would prevail.
Without some other intervention that would mean that the investment firms, which are owed more than $360 million by Relativity, would take control of the troubled company. The outcome of the auction will become clearer Sept. 17, when bidders face a deadline for expressing interest. Bids are due Sept. 21, with an auction set for Oct. 1 at the Blackstone Group’s New York offices. U.S. Bankruptcy Judge Michael Wiles has set an Oct. 5 hearing to confirm the sales outcome.
Fifty companies have signed non-disclosure agreements allowing them to look at Relativity’s financial data, among them Lionsgate, Metro-Goldwyn-Mayer, STX Entertainment and Broad Green Pictures. Other interested parties include Fremantle, Banijay (parent of Bunim-Murray), and several private equity players and hedge funds.
ITV, the British television operator, is not believed to be in the hunt all because it is not interested in the movie studio. Sources say the Orchard –the music, film and video distribution outfit owned by Sony — has also passed on making a bid.
Cinedigm, which at one point discussed a reverse merger with Relativity, has not ruled out trying to make a play for another, similar arrangement.
The issue for many potential buyers is that they are less interested in purchasing Relativity in its entirety than they are in prying away various parts of its business. Its television business, which includes reality programs like MTV’s “Catfish” and network shows such as the upcoming CBS thriller “Limitless,” is believed to have the most value. Insiders peg its worth at roughly $150 million or less.
Relativity TV head Tom Forman is mulling the possibility of partnering with investors on a bid that would ultimately allow him to have ownership in the TV side.
Relativity’s film division is not as attractive, primarily because of its limited library. A larger cache of films that it previously held was sold off to Elliott Associates, when the giant hedge fund divested some of its Relativity holdings. Upcoming releases that the studio still holds, like the comedy “Masterminds,” are the subject to legal claims by lenders who were promised some of the first dollars out of box office revenues.
“It’s not exactly like they’ve got the Bond and ‘Rocky’ films,” said the hedge fund operator. “The future film releases can either be an asset or a liability. The risk to any buyer will be the P & A exposure and whether they think they can recoup that investment. There is not going to be a bidding war for these films.”
Moreover, many of the companies that are looking at Relativity already have their own film distribution and marketing divisions and consequently have no need to absorb the studio’s operations.
Should the stalking horse group be successful, insiders say they are committed to investing in building the company’s television business and turning it into a company that’s more focused on that business than it is in the film game.
Relativity’s investment banker, Blackstone, is busy trying to drum up enthusiasm. Potential buyers can get a glimpse of preliminary financial data. But for a more complete view, companies must sign non-disclosure agreements. If they are declared viable bidders, contenders will get even more data.
In an exclusive interview with Variety, Blackstone senior managing director C.J. Brown, who is overseeing the auction, said he is receiving serious interest in the company from strategic investors and financial institutions. He predicted that bidding would be robust. He also signaled that he believed the company would be more valuable when sold off in its entirety instead of being carved up and sold in parts.
“We think the businesses work well together, and there are indeed synergies that help the creative process and that we’d do well if it were sold in its entirety,” said Brown.
Cynthia Littleton contributed to this report.