Ryan Kavanaugh in Negotiations to Take Back Most of Bankrupt Relativity

The offer comes as an auction for the studio’s assets kicked off Thursday in New York and continues into Friday.

In a surprise twist, Relativity Media CEO Ryan Kavanaugh is in negotiations with the so-called stalking horse bid group to take back all but the TV division of the bankrupt studio.

A source familiar with the negotiations says talks are expected to wrap up by mid-day Friday in New York, where the auction began Thursday for the Chapter 11 studio. The source says the best offer was a $250 million credit offer made by senior lenders including Anchorage Capital, Luxor Capital, Falcon Investment and Colbeck Capital — also known the stalking horse group. That bid would be for the entire studio. But late yesterday, Kavanaugh made an offer to the stalking horse group to buy from them the studio's assets minus the TV division.

The source says the group is evaluating whether or not Kavanaugh offer exceeds the group's valuation of those parts of the studio, which include the film division. In order for any deal to go through, Kavanaugh would have to prove to the group that he has the financing in place and the ability to capitalize that business. Though Relativity board member Ron Burkle has been identified in reports as the money behind Kavanaugh's offer, the source said that is inaccurate and wouldn't disclose who Kavanaugh's backers are. A rep for Burkle didn't respond to a request for comment.

The source also disputed the idea that Kavanaugh has already won back the majority of the studio, as one report suggested late Thursday night, and said there are many contingencies that would have to be met. "A framework has been proposed, but he would have to prove to the stalking horse bid group and judge that A., he has the financing and B., he has the ability to capitalize that business," the source said. "That hasn’t been done yet."

A spokesperson for Relativity declined to comment as did a rep for the stalking horse group.

In order for Kavanaugh's offer to be successful, U.S. Bankruptcy Court Judge Michael Wiles, who is overseeing the case, would have to deem that it is better for the studio to be broken into pieces as opposed to stay together as one unit.

It is unclear what the dollar figure is for Kavanaugh’s offer. Kavanaugh’s offer reflects a combination of his own money as well as the unnamed backers. The embattled mogul has stressed that he hopes to hold onto the studio he founded 11 years ago that has produced such films as Limitless, The Fighter and Act of Valor as well as TV series like the MTV’s Catfish and CBS’ Limitless.

The results of the auction are not expected to be disclosed formally until a hearing on Monday. The sale is scheduled to be completed by Oct. 30.

In July, Relativity Media filed for Chapter 11, marking one of the biggest bankruptcies in Hollywood history. At the time of filing, Relativity had between 1,000 and 5,000 creditors, $100 million to $500 million in assets and between $500 million and $1 billion in liabilities. The auction process is being handled by the Blackstone Group.