In a surprising, 11th-hour development, an investor group including supermarket magnate Ron Burkle has made a strong bid that could keep CEO Ryan Kavanaugh in control of much of bankrupt Relativity Media, the multimedia company he created — though without the television division that is viewed by investors as the company’s strongest asset, according to a source familiar with Thursday’s auction of the company.
Talks will continue Friday morning to determine whether Kavanaugh and the new investor group will be able to win a film studio, sports agency, arts school and other divisions of the 11-year old company, said the source, who requested anonymity to discuss sensitive and ongoing negotiations.
Another source familiar with Thursday’s prolonged talks said that Kavanaugh’s group must still provide proof that it can finance the acquisition and then pay for ongoing operations — assurances that a U.S. Bankruptcy Court judge will insist on before approving any transaction. A hearing on a potential sale of the company is set for Monday in Judge Michael Wiles’ court in New York City.
Burkle’s representative could not be reached to confirm his involvement. The mogul and mega-political donor has previously invested in Relativity when it was in a tight financial fix. He has stood by Kavanaugh as criticism, and debts, mounted. Burkle once called Kavanaugh, now 40, a “visionary” in the entertainment business. A Relativity spokesman declined to comment.
Kavanaugh’s audacious bid to remain in charge of Relativity may surprise many outsiders, since the company compiled nearly $1.2 billion in debts and just an estimated $560 million in assets during his tenure. But the Los Angeles-bred entrepreneur has defied expectations before, finding new backers for his company on several occasions, even as many skeptics doubted his track record, particularly when it came to picking winning films.
Under the scenario that unfolded late Thursday, Relativity Television would be taken over by senior lenders, who in August made a $250 million “stalking horse” bid for the entire company. That group is made up of Anchorage Capital, Falcon Investment Advisors and Luxor Capital and is said to be interested in running the television business over the long haul, with high hopes for reality programs like “Catfish.”
Though the sources following the deal gave no indication how much Kavanaugh and his partners were willing to pay for the rest of Relativity’s holdings, the price presumably would be bargain basement, because there had been few bids for Relativity divisions, other than television. Some film companies that looked at Relativity Studios said they considered it a potential cash sink hole, given its previous losses and the substantial capital that would have to be raised to gin up new production and to release completed films.
The potential deal would give the Kavanaugh group Relativity Studios, Relativity Digital Studios, a share of the Relativity EuropaCorp Distribution joint venture, Relativity Sports and Relativity Education, along with the company’s branded entertainment division, said one individual knowledgeable about the situation. It is unknown how Relativity’s partner, EuropaCorp, will respond to the proposal. Relativity holds a 25% interest in the sports agency, which the Kavanaugh group would acquire. The education division runs a college for the fine arts.
The uncertainty of the situation was evident in the varying accounts given by the two sources. One suggested that the deal is virtually sealed, while the other said it seems likely but that Kavanaugh’s group still has to offer considerable proof of its ability to perform. One source suggested that Kavanaugh would maintain control of scripted television programs, most importantly the new CBS TV show, “Limitless,” based on a Relativity movie starring Bradley Cooper. The other source insisted that all television programs would go to the Anchorage-Luxor-Falcon group, including “Limitless.”
Kavanaugh flew to New York Wednesday to personally make his offer for the company at the offices of Blackstone & Company. While early plans for the auction had suggested the dealing could conclude by afternoon, the talks stretched into the evening and will now continue Friday, with no end point certain.