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For Luc Besson’s EuropaCorp, Pathé Could Be the Ideal Savior – but It’s No Done Deal

After a couple of years searching in vain for a way out of persistent financial trouble, Luc Besson’s EuropaCorp could end up in the hands of Jerome Seydoux’s French film powerhouse, Pathé. It would be a sort of homecoming for Besson, who started his filmmaking career making movies such as “Nikita” and “The Professional” with Seydoux’s brother Nicolas at Gaumont.

Pathé is currently in advanced negotiations to take a majority stake in EuropaCorp and stands as the only serious bidder at this point, according to three financing sources. As part of a deal, the stakes held by Besson’s company, Frontline (38%), and China’s Fundamental (28%) would be diluted, the sources said.

Time is of the essence for EuropaCorp, which was granted a six-month debt waiver in May from a French commercial court to give it more time to stabilize its finances. The company has been working with Messier Maris & Associés to find someone who can inject equity capital into the company, as well as restructure and pay a portion of its debt. EuropaCorp had previously charged its primary lender, JP Morgan, with the same task, but discussions with potential buyers and investors, including Netflix, froze after Besson got hit with rape allegations by the actress Sand Van Roy. A nine-month police investigation into Besson was ultimately dismissed in February.

Pathé and EuropaCorp have already been collaborating on the distribution of EuropaCorp’s movies in France. The two companies signed a three-year distribution deal last December when EuropaCorp decided to stop its domestic distribution activities to help reduce overhead. On May 1, Pathé released Guillaume Canet’s “Little White Lies 2,” which has had a healthy run at the French box office. Next up is Besson’s thriller “Anna,” starring Helen Mirren and Luke Evans, which comes out June 21 in the U.S. via Lionsgate, and in July 10 in France.

The performance of “Anna,” Besson’s first directorial outing since his underwhelming sci-fi movie, “Valerian and the City of a Thousand Planets,” will help determine whether Besson is still a key asset or, rather, a potential liability for EuropaCorp, especially because of the sex scandal, several sources said. “Anna” will show if Besson can still deliver hits like “Lucy” that can be turned into franchises.

If “Anna” performs well, that could, in turn, entice more bidders besides Pathé, not just from France but also from the U.S. At the moment, the company isn’t an expensive proposition: Its market capitalization stands at just €46.3 million ($52.4 million).

Getting rescued by Pathé would be a relief for EuropaCorp, but it’s not a done deal. As EuropaCorp said in a May 29 statement acknowledging the talks, Pathé is interested in the company under “several essential conditions,” including the restructuring of its debt. EuropaCorp said it would need to reach “an agreement on the restructuring of the existing debts” with “the senior and junior lenders,” a reference to JP Morgan (€138 million) and Vine (€80 million). These credit lines mature in October 2019 and April 2020, respectively.

One issue is that EuropaCorp’s debt is bigger than the value of its library, which was estimated at €139 million at the end of March 2018. And the library is already pledged to the lending banks, JP Morgan and Vine, to cover a potential default on the debt. One possibility is for JP Morgan to convert a portion of the debt into a stake in the company. Pathé could then cover the remainder of its debts through a capital increase. A less likely scenario would see Pathé waiting for EuropaCorp to go bankrupt and then buy the library directly from JP Morgan.

So why do Pathé and its savvy owner, Seydoux, think EuropaCorp is worth the investment? Firstly, because Pathé itself is a thriving family-owned business – it runs France’s second-biggest cinema chain – it’s not in a rush to make a profit from EuropaCorp and can think long-term. According to the three financing sources, Pathé is mainly interested in EuropaCorp’s library, which includes several strong franchises, such as “Transporter” and “Taken,” and action brands like “Lucy.” Pathé also has faith that Besson can still deliver worldwide hits within the right budget. If Pathé takes over EuropaCorp, the idea would be to have Besson direct and/or produce several French- and English-language films every year, according to another industry insider. EuropaCorp currently has no films in production.

Another incentive for Pathé is the complementarity of EuropaCorp’s strengths. Besson’s banner has experience making big, internationally driven action movies, which isn’t something Pathé is known for. Pathé has focused either on prestige auteurs such as Pedro Almodovar, Stephen Frears and Danny Boyle, or on mainstream French comedies like Dany Boon’s “La Ch’tite Famille” and “Les Tuche.” Pathé is eager to become more international, and EuropaCorp could provide a pathway for those global ambitions.

Pathé is also interested in Asia. EuropaCorp’s ties with Fundamental, a Chinese distribution company, could be attractive. Pathé recently signed a deal with leading South Korean distribution company CJ Entertainment and could be interested in doing the same with Fundamental, even if that company appears to be struggling, a financing source said.

A foreshadowing of a possible alliance between Pathé and EuropaCorp came last year, when Pathé poached Marie-Laure Montironi, EuropaCorp’s longtime and well-respected international sales boss, who knows precisely what the library is worth and knows how to sell EuropaCorp’s movies.

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