YuuZoo Who? Meet Relativity's Odd New Singapore Investor
A source says the company that specializes in social media, e-commerce and entertainment is paying some $50 million for a one-third stake in Ryan Kavanaugh's struggling studio with an option to buy more.
In announcing that Singapore web giant YuuZoo has bought a 33 percent stake in Relativity Media, a bizarrely worded press release proclaimed: "Some market observers have already compared the Relativity-YuuZoo deal to the recently announced acquisition of Time Warner by AT&T."
Well, not quite.
The investment in Ryan Kavanaugh's embattled studio may have caught as many industry watchers by surprise as the epic proposed $85.4 billion Time Warner sale. After all, Relativity has been hanging by a thread since it emerged from bankruptcy in April. YuuZoo, which is publicly traded on the Singapore Stock Exchange, isn't disclosing the price tag. But a source says the company that specializes in social media, e-commerce and entertainment is paying some $50 million for a one-third stake. YuuZoo also has an option to buy up to an additional 50 percent for an additional $150 million six months from now.
Kavanaugh declined to offer specifics on the deal, but tells The Hollywood Reporter: "We're happy to have found a strategic investor not only as a capital partner but a leader in mobile content and payment platforms, with a focus on bridging advertising and content. This combination brings Relativity into the future."
Earlier this month, Kavanaugh put Relativity up for sale, and after hiring Entertainment Media Partners and Zolfo Cooper, began fielding offers. It was a somewhat surprising twist in the Relativity saga. In July 2015, the studio filed for bankruptcy protection in New York, listing assets of $560 million but liabilities of a whopping $1.18 billion — one of the largest and closely scrutinized bankruptcies in Hollywood history. But then Kavanaugh made a successful bid to retain the film division after selling off the TV unit and enlisting Trigger Street duo Kevin Spacey and Dana Brunetti to run Relativity 2.0 (Spacey later dropped out before his deal was finalized).
Few in the U.S. have heard of YuuZoo, with many following the Relativity sale asking a collective "Who?" According to YuuZoo, the company created a patented mobile and online technology platform in which content can be customized for local markets. Distribution partnerships include Alisports, the subsidiary of China’s e-commerce giant Alibaba; NTA, the largest TV network in Africa; Etisalat, the largest telco in the Middle East and Africa; and SMG, China’s second-largest TV network. YouZoo's revenues grew in the first half of 2016 by 242% year-on-year to $58.6 million.
But like Relativity, YouZoo has fielded criticism for its bold claims. In May, YuuZoo shares fell 12 percent after auditor Moore Stephens issued a disclaimer in its report over the company's fiscal year 2015 financial statements, saying "[We have] not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion" and cited the lack of comparable business models as well as an operating track record.
YouZoo responded with an explanation, saying that it works through an international network of franchisees, who buy a license to operate the YuuZoo business in a particular market and pay for the license in cash, in shares or both. That may sound as iffy as Relativity's once-touted algorithm on how to pick box-office hits.
Regardless, Kavanaugh appears to have avoided the fate of having the studio he built from scratch — which once boasted a staff of 350, spanning film, TV, fashion and sports — wind up back in bankruptcy court, likely Chapter 7. Several Hollywood opportunists were hoping for that scenario and were looking to pick off the remaining assets for pennies on the dollar. Still other financial advisors said privately that they were eyeing Beverly Hills-based Relativity as a whole for the right price, noting the studio's foreign output deals and a Netflix pact that together guarantee distribution of Relativity films in some 110 countries as the most attractive assets. Those deals bring in minimum fees ($5 million per movie for the Netflix deal, according to court records). But they questioned whether the Netflix deal would transfer to a new buyer.
"This deal has a tremendous fit where 1 plus 1 does truly equal 10," said YuuZoo executive chairman Thomas Zilliacus. “YuuZoo has over the last few years built a global distribution platform where our unique and patented technology delivers content and merchandise through franchisees and partners now covering 69 countries with more than 4.3 billion consumers. ... Through this deal, YuuZoo just became a full-service technology and content play. It is a game-changing deal for us, and we couldn't be more thrilled."
The YouZoo deal is subject to approval from the Singapore Stock Exchange.
It is unclear if Brunetti will remain with the studio under its new ownership. Kavanaugh says that he expects to stay on as chairman for an undefined period and help bring in a new CEO. In the meantime, New York-based Relativity staffers, as well as employees of RED, its joint venture with Luc Besson's EuropaCorp, were spotted last week vacating its building. The company is downsizing to more modest offices.