Did Warner Bros. Overpay With Its RatPac-Dune Deal?

Did Warner Bros. Overpay With Its RatPac-Dune Deal - GRAPHIC-H 2019
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At the 11th hour, the studio exercises its right to match a bid of about $290 million for the Brett Ratner-led library — despite not getting major rights associated with the films.

With its Jan. 2 move to buy the RatPac-Dune library, Warner Bros. may have severed its final tie with disgraced producer-director Brett Ratner. But did the studio spend more than it needed to?

Sources tell The Hollywood Reporter that Warner Bros. paid about $290 million for the RatPac-Dune stake in some 76 WB movies including such hits as Wonder Woman, Dunkirk and American Sniper. Several banking-world sources call that a high price tag considering that there are said to be no lucrative rights associated with the films and that the library represents a cash-flow stream only.

"It seems at a minimum that they paid full price," says Wall Street analyst Hal Vogel. "We don't know what the rights are, and my guess is that this is all related to the industry's fantasy that streaming will be a bonanza. Not so fast, in my opinion."

Vogel adds that despite the fact that Warners has a "sugar daddy" in new owner AT&T being willing to throw around cash, "my bet is that Warner Bros./AT&T will in the end be disappointed by the results." Adds MKM Partners' Eric Handler, "The problem in trying to assess the value is, we will never know how many deals there are struck globally and how much of the library is monetized."

In late December, Vine Alternative Investments and CEO James Moore appeared to be the winning bidder for the RatPac library, the end result of a $450 million investment vehicle formed in 2013 by Ratner, Australian billionaire James Packer and now Treasury Secretary Steven Mnuchin (Packer later sold his share to Ukraine-born billionaire Len Blavatnik).

A source familiar with the deal says the way it went down was unusual and that Warners CEO Kevin Tsujihara initially indicated that the studio was uninterested in purchasing the library but changed course in late December — a surprise to Vine, whose Hollywood holdings include a stake in Village Roadshow and Luc Besson's besieged EuropaCorp. A Warners source denies that Tsujihara ever gave the impression he wasn't going to bid. Vine declined to comment.

Since its inception, RatPac-Dune has been shrouded in mystery. Little has been known about the investors, although Mnuchin had enlisted the Koch brothers as well as Bill Gates as backers.

The Warners deal raised eyebrows for other reasons, including that Ratner — accused by several women of sexual assault in a 2017 Los Angeles Times exposé — would reap millions, according to a knowledgeable source. Given the outcry surrounding the prospect of Harvey Weinstein profiting from a sale of The Weinstein Co. in bankruptcy (TWC assets were sold for $289 million to Lantern Entertainment in May), the optics of Warners' matching bid are poor. (Ratner has denied wrongdoing.)

Another perplexing question is why Warner Bros. would be so keen to exercise its right to match Vine's bid when the studio is essentially buying backend revenue only. But a source says Warners parent WarnerMedia is merely looking to limit as many third-party earners as possible in advance of launching an expected streaming service to rival Netflix and those in the works from Disney and NBCUniversal.

Also something of a head-scratcher is why Mnuchin's brother, Alan Mnuchin, who runs the New York-based investment bank AGM Partners, handled the sale rather than a more established firm. Other than UTA taking a stake in it in 2017, Alan Mnuchin's company seems to have no footprint in Hollywood.

"How many libraries has he sold in the past?" one finance-world source asks rhetorically. "How many major film deals has he handled?" (One source says that Alan Mnuchin raised some money for Relativity Media back when his younger brother was co-chairman.) But Vogel is less concerned about Mnuchin's presence, noting, "If he got a good bid, he did what he was hired to do."

This story also appears in the Jan. 16 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.