AMC Networks Plans $65M Investment in RLJ Entertainment as Part of Digital Strategy

Robert Johnson - P 2012
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The company, which has made investments in such digital firms as DanceOn and MiTu, would have an option to take a controlling stake in the company in several years.

RLJ Entertainment, the entertainment company distributing content mainly in North America, the U.K. and Australia whose chairman is BET founder Robert Johnson, on Monday unveiled a $65 million proposed investment deal that would give AMC Networks the option to take a controlling stake in the company down the line.

RLJ’s businesses include branded OTT channels Acorn TV, focused on British TV, and UMC, the Urban Movie Channel.

In a regulatory filing, RLJ said it has struck an investment agreement with AMC Networks unit Digital Entertainment Holdings, under which AMC will provide a $60 million seven-year term loan and a $5 million one-year term loan to the company. RLJ in turn would grant AMC warrants to purchase at least 20 million shares of the company’s common stock in the deal, which would at the end of the period give AMC the right to take a controlling stake. A warrant is a derivative that gives the right, but not the obligation, to buy stock.

The first AMC warrant for 5 million warrant shares expires on the fifth anniversary of the closing date, the second for 10 million expires on the sixth anniversary and the third for 5 million expires on the seventh anniversary. The exercise price of the AMC warrants is $3 per share, subject to certain adjustments. The third warrant also provides that the number of warrant shares shall be increased to the extent necessary to ensure that upon the full exercise, AMC will hold at least a 50.1 percent stake in RLJ. The company will pay interest partly in cash and partly in stock.

AMC, led by CEO Josh Sapan, will have the right to designate two directors to the company’s board of directors. Upon the full exercise of the warrants, AMC will have the right to designate at least a majority of the company’s board. RLJ's board currently has seven members, including Johnson and CEO Miguel Penella.

Johnson and certain directors, executives, principal stockholders and their affiliates, who in the aggregate hold approximately 47 percent of RLJ, have agreed to vote in favor of the AMC transaction. But the deal needs approval from a majority of stockholders and other clearances, with a closing expected during the third quarter.

“The company may not entertain or solicit competing acquisition proposals, subject to a customary exception for the company’s board of directors to consider certain unsolicited acquisition proposals received within 10 business days of the date of the investment agreement (but subject to AMC’s right to match, or otherwise propose amendments to its transaction in response to, any such acquisition proposal),” RLJ said in its regulatory filing.

AMC Networks has made investments in the digital space in recent years, including in dance entertainment-focused YouTube network DanceOn and Latino-focused digital media firm MiTu.

Johnson created RLJ Entertainment in 2012 when one of his companies agreed to acquire Image Entertainment and Acorn Media Group to create "one of the largest independent distributors of digital and video content globally."

RLJ owns a 64 percent stake in Agatha Christie Ltd., which manages the intellectual property and publishing rights to the creations of the writer behind such characters as Miss Marple and Hercule Poirot. RLJ also has acquired North American rights for such movies as Pierce Brosnan’s I.T., Ethan Hawke’s baseball movie The Phenom, Western Bone Tomahawk starring Kurt Russell and horror movie The Mind’s Eye.