EuropaCorp Considers Dropping Relativity From Joint Venture; Seeking Partner for ‘Valerian’ (EXCLUSIVE)

The board of EuropaCorp is meeting Thursday evening to go over its quarterly financial results and is expected to discuss if it will pursue legal action to oust Relativity Media from RED, the distribution and marketing joint venture the two companies formed in 2014.

Relativity Media has not paid its bills in months, which EuropaCorp believes leaves it in breach of contract. As reported by Variety in October, EuropaCorp previously told its shareholders that Relativity was in danger of losing its 50% stake in the venture after failing to pay its share of the quarterly overhead which was estimated between $2 million to $3 million by Dec. 14.

A source close to the board said shareholders were eager to reach a decision over Relativity’s role in RED because of the upcoming release of “Valerian and the City of a Thousand Planets” which has an estimated budget of $170 million and is set for a summer roll-out in the U.S. EuropaCorp executives are having discussions with several studios, including Lionsgate and STX Entertainment, about possibly bringing them on to “Valerian,” Variety has learned. The upcoming science-fiction epic is a passion project for EuropaCorp founder Luc Besson, who is also directing.

Both EuropaCorp and Relativity are supposed to contribute to the joint venture’s operating costs. EuropaCorp expects to make a decision and reach some sort of resolution in the next few days. Spokespeople for Relativity declined to comment. A Relativity insider, meanwhile, disputed rumors that Relativity could be pushed out of its 50% stake in the joint venture.

A spokesperson for EuropaCorp said “both partners maintain 50% ownership in the joint venture, and EuropaCorp has never claimed otherwise.”

EuropaCorp is likely looking to part ways with Relativity in order to reassure its new Chinese shareholder Fundamental Films, which acquired a 28% stake in the company on Sept. 29 and gave its chairman Mark Gao a seat on EuropaCorp’s board, according to a knowledgeable source close to EuropaCorp.

Today’s board meeting in Paris will indeed be Gao’s first. He will be joined by Besson and CEO Marc Shmuger.

“EuropaCorp could either choose to oust Relativity from the joint venture or leave RED and form a partnership with another U.S. distributor,” pointed out Pavel Govciyan, analyst at Natixis. “Seeking a solid distribution partner for ‘Valerian’ seems like a logical step for EuropaCorp,” Govciyan said.

“Why would EuropaCorp take the risk to have RED, which at this point is too small and financially handicapped, to handle a tentpole like ‘Valerian’ when the stakes are so high?” said the analyst.

Relativity filed for bankruptcy protection in 2015 after a series of film flops. It emerged from Chapter 11 earlier this year, but the films it released after exiting, “The Disappointments Room” and “Masterminds,” both flopped at the box office. This week, the company laid off a half dozen administrative staffers.

EuropaCorp will release its financial results on Dec. 16.

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