STX Nears Deal to Secure Saudi Arabia Financing
It would make the Bob Simonds-run indie studio the first to take Saudi money since the murder of Washington Post columnist Jamal Khashoggi in October.
Following a string of box-office duds, STX Entertainment will shore up its cashflow with an investment from Saudi Arabia.
Sources tell The Hollywood Reporter a deal between the country’s Public Investment Fund and STX is nearly complete. That would make the Bob Simonds-run indie studio the first to take Saudi money since the murder of Washington Post columnist Jamal Khashoggi in October. As reports swirled implicating the Saudi government, WME decided to extricate itself from a $400 million Saudi investment made months earlier. Since then, no Hollywood entity dared return to the cash-flush nation.
The five-year-old studio, whose model was mid-budget films anchored by a star, has largely struggled since its inception, with some notable hits including Bad Moms ($184 million worldwide) and the Amy Schumer star vehicle I Feel Pretty ($95 million worldwide).
But the recent performance of Uglydolls put added strain on STX. The family film, which was released on May 3 and featured the voices of Kelly Clarkson, Nick Jonas and Janelle Monae, has earned just $28 million worldwide to date.
“The company has been very mediocre,” says MKM Partners' Eric Handler. “If you’re a new company, you need successful films to build the value of your catalog so you have future cash flow streams to support your frontline business. For every hit, they had multiple misses.”
STX's bid for an IPO on the Hong Kong stock exchange got shelved in 2018, a blow to Simonds and STX Entertainment chairman Adam Fogelson. Since then, the mini-major has seen an executive exodus, including COO Tom McGrath and former CFO Rich Sullivan. In June, Oren Aviv stepped down from his post as head of the company’s motion picture group.
As the money began running out, STX stopped renewing executive contracts and quietly shut down its much-touted VR division. Simonds began looking for fresh investment, financial sources say, and was looking for someone to partner with Fogelson as a co-chairman. But that plan faltered as STX’s syndicate of senior lenders started to mull plans to sell their positions down to new lenders, potentially at a discount, sources say.
Though TPG has the largest equity and debt position in STX, it has relied heavily on Chinese financial backers, namely Beijing-based private equity firm Hony Capital, tech giant Tencent and Hong Kong telecom firm PCCW Media. And its first 18 films were co-financed by Chinese studio Huayi Brothers Media. Naturally, as STX's money woes have mounted, it has attempted to return to the Middle Kingdom cash well.
Sources in Beijing investor circles tell THR that STX, in recent months, has approached every Chinese entity that could conceivably execute such an investment in today's fraught climate (or that might have enough available capital already parked offshore) — from the tech giants Alibaba and Tencent, to private equity firms like Yunfeng Capital and the conglomerates Wanda and Fosun Group.
Initially, STX returned to China seeking equity investment, but after it received no takers, sources say the company began offering debt (meaning the Chinese investor would effectively lend money to STX on attractive terms). Hony Capital, one of STX's core equity investors, was unwilling to guarantee the debt, however, and none of the prospective parties took them up on the offer (Honey Capital's CEO and managing director both sit on STX's board).
Even setting aside the raging U.S.-China trade war, it comes as no surprise that Chinese investors wouldn't take the bait. Although STX's theatrical film releases have struggled everywhere, they have made virtually no impact whatsoever in China, despite their strong local partners in the market and the country's considerable box office growth of recent years.
Of the studio's 25 or so films, only one, Jackie Chan's The Foreigner, has broken through in a significant way in China (the film earned $81 million, which is on the middling to low end for a Jackie Chan vehicle). Alibaba Pictures somewhat recently boarded STX's UglyDolls as a full co-producer and co-financier, but its high hopes for the project were met with disappointment (the film won't open in China until Aug. 8, a full three months after it bombed stateside).
An STX spokesperson says, "We speak to a broad range of investors from all over the world who are interested in our business, and we will not comment on any of our discussions."
This story appears in the July 19 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.