STX's Bob Simonds: Huayi Brothers Deal Will "Supercharge" Film Financing Facilities

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Robert Simonds, Wang Zhonglei

The 18-film co-financing and distribution agreement marks one of the first major investments by a Chinese company in a Hollywood studio film slate.

Bob Simonds, chairman and CEO of motion picture and television studio STX Entertainment, said a landmark deal with leading Chinese film company Huayi Brothers was a "dream" that will supercharge its film financing abilities.

"What this has actually meant is that we are going to spend $750 million in the next 12 months," he told The Hollywood Reporter in an interview. "We'll spend about $900 to $950 million next year. And we'll spend $1.125 billion to $1.5 billion in 2017."

The co-financing and distribution agreement marks one of the first major investments by a Chinese company in a Hollywood studio film slate, and through 2017, there will be at least 28 movies and potentially well north of 30. The deal became effective after it received Huayi Brothers' shareholder approval at a meeting in Beijing.

While China-Hollywood links have been all the rage in recent months, with more talk than action, Simonds said this pact is not your typical China deal.

"This is very much unlike other deals, where it's people trying to get into China and it's movies about China. This is Huayi reaching into the global marketplace. It much more akin to the Japanese investing in Columbia as opposed to [JeffreyKatzenberg trying to get DreamWorks into China," said Simonds.

"Huayi is actually involved in all of our films. They are taking a percentage of all the films that we are doing and they participate in the box office and all revenue streams of the money that's generated from those films on a global basis," he said.

Huayi will partner on projects such as the recently announced The Free State of Jones, with Matthew McConaughey and Gugu Mbatha-Raw and The Gift, a psychological thriller directed by Joel Edgerton and produced by Jason Blum that stars Jason Bateman, Rebecca Hall and Edgerton.

The originator of the deal was Simonds' longtime friend, Donald Tang, formerly head of Bear Stearns in China. It was over drinks in Beijing about five months ago when the subject of Huayi Brothers came about.

Siblings Wang Zhongjun and Wang Zhonglei, who run Huayi Bros., have made no secret of their determination to establish a sizeable foothold in the U.S. film business. To date, the company has invested in individual films like Sony's Fury and Lionsgate's John Wick and Mordtecai, and has also set up a U.S. subsidiary.

It was linked to any number of U.S. studios, and sometimes the links were more than speculation — in 2013, an expected tie-in between Huayi Brothers and Legendary Entertainment fell through at the last hurdle after investors were unconvinced, and last year, Huayi Brothers' plan to invest in Jeff Robinov's Studio 8 project also didn't happen.

"Huayi had met with everyone but it did not come together," said Simonds.

Huayi Bros also saw its income from film decline 75 percent in the first nine months of last year, and the group has been focused on expanding other sectors, particularly online gaming and building cinemas.

STX already has strong Chinese backing in the shape of the private equity firm Hony Capital, which has $7 billion under management, along with equity from the venture capital firm TPG, as well as Gigi Pritzker and Beau Wrigley.

It was primed to produce 8 to 10 films a year, and has a film slate that includes the psychological thriller The Boy, starring The Walking Dead's Lauren Cohan and The Secret in Their Eyes, starring Chiwetel Ejiofor, Nicole Kidman and Julia Roberts.

"Don suggested Huayi, and from our standpoint that is a dream, to be in business with China's biggest privately held entertainment conglomerate. We went about putting that together, and what that has allowed us to do is immediately upsize our business from 8 to 10 major studio movies a year to 12 to 15 major studio movies a year," said Simonds.

Huayi CEO Wang Zhongjun said his company had always been keen on international development.

"This cooperation facilitates the company join the Hollywood film system to invest, produce and release. It is a very important step to enter American film market. It will be good to strengthen the film business and our international market influence. At the same time, considering Huayi's importance in China, the cooperation will be also good for STX's intellectual property to land in China," Wang told local media.

The partners declined to reveal details of how much credit is involved, but by doing the math, the agreement works out to revolving credit of around $1 billion.

"STX's average budget is around $40 million and its average P&A spend is about $35 million, so when you plug that in to our facilities it really does supercharge our facilities," said Simonds.

STX has been keeping a low-profile on the deal — part of the territory of doing business in China.

"Our attitude is to not to brag about things, but just do it. We've got four movies in the can right now, and we'll be announcing another eight in the next month, month and a half. We've been waiting for this deal to fund and that just happened. It really does change our financial profile immediately," said Simonds.

Tang said that Simonds is very conservative and that this deal is much more than a co-financing deal.

"This is a strategic collaboration to internationalize by using the distribution capability in China to reach out to Hollywood to access the right content at the right time, and it enables STX exposure into this gigantic market through Huayi Bros.," said Tang.

Launched in 2014, STX Entertainment has amassed a stable of seasoned studio executives, including former Universal chairman Adam Fogelson and veteran marketing executive Oren Aviv.

Many of the leading figures in the deal have a strong interest in China.

Tang ran Asia for Bear Stearns, Simonds himself was vice-chairman of China Water for four or five years.

TPG Growth's founder Bill McGlashan is a known Sinophile, having lived in Shanghai for five years and done business there for 25 years. TPG was among the first private equity firms to operate there.

"There are a lot of people involved in the deal who happened to have an interest in that part of the world. It just so happens that it has become the single most important story in entertainment," said Simonds.

Huayi Bros. announced the deal in mid-March in a regulatory statement, but didn't name the U.S. partner. It subsequently turned out to be STX.

A team for Manatt, Phelps & Phillips, LLP led by partner Lindsay Conner, negotiated for Huayi Brothers.

"Deals like this attract attention on both sides of the Pacific, and will doubtless give some other major companies and funds some ideas about doing their own deals," said Conner.

"One thing it does show is that these deals can get done. We've been through a number of years in which more was said than accomplished. This deal is evidence that agreements can be struck and closed. And that too is a positive," Conner told THR.

Apr. 1, 8.40 p.m. Updated with additional detail about deal from company, quote from Huayi Brothers CEO Wang Zhongjun.

 

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