March 29, 2013 2:21pm PT by Eriq Gardner
Prana Studios' Winning Bid for Rhythm & Hues Valued at About $17.8 Million
The auction for Rhythm & Hues, the VFX house that filed for Chapter 11 bankruptcy protection on Feb. 13, has been dramatic to say the least. Prana Studios has submitted the winning bid, but objections could draw out any final resolution.
The bidders had to announce themselves by March 22. In anticipation of the bidding, investment bank Houlihan Lokey contacted nearly 90 potential financial and strategic buyers, which resulted in 27 executed Non Disclosure Agreements and on-site due diligence for about a dozen such bidders. Ultimately, there were five realistic candidates. Two bidders attempted to make late bids but weren't deemed qualified. Three companies ended up in the running at the auction: Brave Vision Investments, Prime Focus and a holding company associated with Prana Studios.
But shortly before the auction commenced Wednesday, Prana withdrew from the auction, according to legal papers.
Brave Vision, a Chinese company led by Jiang Yanming -- a president of China Lion -- had the initial bid.
Prime Focus raised the bidding on several occasions and the auction continued into Thursday.
Then, somewhat dramatically, Prana had its concerns addressed -- those remain unclear -- and was able to reenter the bidding. The auction concluded at approximately 9:05 p.m. Thursday night -- and Prana was declared the winner for $1.2 million in cash, the assumption of loans from Universal and Fox, and the assumption of further obligations including employee benefit payments, a real estate lease and payments on "cure amounts" on transferred contracts such as with Side Effects Software Inc.
As part of the winning bid offer, the purchase price is not to exceed $16,277,020 in assumed liabilities, the $1.2 million in cash and an estimated $327,222 in cure amounts -- bringing the total package to roughly $17.8 million. The benefit of buying R&H will be the assumption of contracts with Fox, Universal and Legendary Pictures.
Also, interestingly, neither John Hughes, the president and CFO of R&H, nor the other shareholders -- vp development Pauline T’so, and vp software Keith Goldfarb -- have been promised employment
But the final bid is not without controversy.
Prime Focus doesn't believe that Prana is the winner and believes that more bids should be permitted.
South Korea’s JS Communications filed a conditional objection after being named the "stalking horse" and argues that R&H has “invited bids that improperly violate this court’s procedures order so as to deny JS its court-approved breakup fee.”
Additional documents indicate that Psyop Media Co., a production and design firm, also attempted to make a bid -- and that there was a late hearing Thursday on whether that would be permitted.
In R&H's filing Friday, the lawyers representing the company say the holding company associated with Prana was picked "based on an analysis of a variety of qualitative and quantitative factors," including the views of the creditors committee, the ability of Prana to retain employees necessary to complete projects and the "greater likelihood" of that transaction closing.
Peter Fishman, the director of R&H's investment bank, adds in a declaration that the winning bid "would satisfy all obligations under the debtor's DIP Loan, generate sufficient cash to pay in full, in cash, all administrative and priority claims in this chapter 11 case plus an approximately 17 percent cash dividend to unsecured creditors."
A hearing to approve the sale was held Friday morning, and the resolution is unclear. Stay tuned.
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