Prana to Acquire Rhythm & Hues

A holding company associated with Prana Studios submitted the winning bid to acquire visual effects studio Rhythm & Hues at a bankruptcy auction that started Wednesday morning at the offices of its reorganization counsel, Greenberg Glusker.

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A court hearing on confirmation of the winning bidder is scheduled for 10 a.m. Friday.

Prana Studios is a VFX and animation studio with bases in Los Angeles and Mumbai. It is currently providing animation for Disney’s upcoming 3D feature Planes.

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Other bidders in the auction included India’s Prime Focus; a Chinese entity involving Jiang Yanmin, president of China Lion (and a founder of Technicolor Beijing); and bicoastal animation company Psyop.

The R&H bankruptcy auction was not without twists. Just Thursday morning, South Korea’s JS Communications filed a conditional objection in connection with the auction. JS had pulled out of being the stalking-horse bidder after it missed its court-mandated deadline of March 19 to execute a binding asset sale and purchase agreement in connection with its stalking horse bid.

But in Thursday morning’s filing, the company argued that the R&H has “invited bids that improperly violate this court’s procedures order so as to deny JS its court-approved breakup fee.”

Specifically, it cited the court order that all bids increase the cash component by at least $525,000, so as to trigger and fund the $425,000 breakup fee. The document said: “This court should not tolerate such a shell game.”

Since filing for bankruptcy, R&H -- the company behind the majority of the Oscar-winning VFX in Life of Pi -- has continued to operate thanks to $17 million in loans from Universal and Fox enabling the studio to continue work on Universal's R.I.P.D., scheduled for release July 19; and Fox's Percy Jackson: Sea of Monsters, scheduled for Aug. 16.

Also keeping R&H going is $5 million in financing from Legendary, which will pay R&H for the completion of VFX work on their movie, Seventh Son, which Warner Bros. plans to release Oct. 18. R&H is a co-investor/co-producer on this film.

R&H filed for chapter 11 bankruptcy protection Feb. 13, not long before the Academy Awards -- and its impact was immediately felt far beyond Hollywood as it drew global attention to the troubled VFX business climate.

It also served as a catalyst for the VFX community to mobilize to bring attention to discuss the issues -- including globalization and subsidies -- that are causing the challenges. It even prompted a demonstration on Hollywood Boulevard on Oscar Sunday, attended by nearly 500 from the community.

There is not a clear consensus on how best to address the business challenges; talk of unionizing and forming a trade association are both being discussed.

In 2012, Digital Domain filed for bankruptcy protection, and its VFX business was acquired by China’s Galloping Horse and India’s Reliance MediaWorks for $30.2 million.

The pressures of the VFX business have caused other companies -- including Asylum, Cafe FX, and The Orphanage -- to close their doors in recent years.