With two weeks to go before a massive debt payment is due, Relativity Media CEO Ryan Kavanaugh assembled some 50 executives on Monday evening and told them he is closing a $300-plus million deal with an equity partner that will allow him to keep his grip on the mini-studio intact.
Sources say Kavanaugh assured his top lieutenants at the meeting that he has raised a new round of financing with a consortium of lenders that includes Chinese and Indian investors as well as major Wall Street funds and is in the process of finalizing the deal. The embattled mogul must make a $120 million payment by month’s end or potentially lose control of the company he founded 11 years ago.
“The deal is closing, and we should be focused on business as usual and ignore rumors,” a source says Kavanaugh told his executives at the company’s Beverly Hills offices. “All contracts are signed, everything is done and we are just finalizing all the paperwork.”
A source who is knowledgeable about the negotiations says the mini-studio secured a signed commitment for $375 million from the consortium weeks ago, but the deal was almost derailed when Kavanaugh, the company’s largest shareholder, became locked in a vicious battle with Colbeck Capital partners Jason Colodne and Jason Beckman — who were ousted from Relativity’s board May 27 after being fingered as the source of a negative story about Kavanaugh in the New York Post. The pair, who joined the Relativity board in 2012 after Colbeck played a key role in a $350 million debt financing deal with Relativity, have continued to put pressure on the company in an effort to gain control.
At the meeting, Kavanaugh came out swinging about what he dubbed Colbeck’s Carl Icahn-style attempts to take over Relativity and said he plans to launch a multi-billion dollar lawsuit against Colbeck Capital. He told staffers that Colbeck drafted something called an “Internal Relativity Plan,” which was distributed to about three dozen people, who were made to sign non-circumvention agreements. Kavanaugh said Colbeck drafted the business plan while its partners sat on Relativity’s board and were paid consultants, showing how they intended to seize 30 percent of Relativity, which they valued at $2.5 billion. The difference, he said, is Icahn wasn’t on the board of Lionsgate, referring to that investor’s role in an attempt to take over that studio, and so was bound by no fiduciary duty. Kavanaugh argued that in serving on Relativity’s board, Colbeck was bound by a fiduciary duty.
Kavanaugh also told his staff that he’s invested $70 million of his own money over the past 12 months “because that’s how much I believe.”
A source familiar with Relativity’s finances says the situation is dire, but Kavanaugh has a better than 50 percent chance of holding on to the company that he has grown from a studio slate financier into a full-fledged distribution company that also boasts a TV division as well as a sports representation unit. Still, Relativity’s scope is what has led to much of its mounting debt, with the company’s revenues unable to keep pace with its overhead. Sources say that Relativity will likely have to make overhead cuts if the deal with the new equity partner closes.
Amid the behind-the-scenes drama between Kavanaugh and Colbeck, Relativity canceled some meetings last week with producers and filmmakers who have projects set up at the studio, with several being told there is a two-week freeze on activity. But others who have projects scheduled to go into production this summer say it is status quo at the mini-studio. One producer with an upcoming movie was told that he would be notified on Tuesday about the status of the project’s release.
One question mark that remains is the position of investor and board member Ron Burkle in the Relativity-Colbeck war. So far, Burkle, whose investment in Relativity is worth at least $800 million, has remained silent, and calls for comment to his Yucaipa Companies have received no response.