Relativity Hits the Auction Block: Who'll Bid on the Wreckage?

Relativity_Selling_Block_Illo - P 2015
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Relativity_Selling_Block_Illo - P 2015

This story first appeared in the Aug. 28 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

It's not every day that a sequel to an Oscar-winning film goes up for auction. But bidders soon will have an opportunity to own a piece of The Fighter 2, which presumably would allow Mark Wahlberg to reprise his role as boxer Micky Ward.

In the wake of Relativity Media's Chapter 11 bankruptcy protection filing July 30, the spotlight has revolved around debt troubles plagu­ing Ryan Kavanaugh's company. But potential buyers — speculation ranges from MGM to investor Ron Burkle — are tak­ing a closer look at what Relativity's assets and unreleased films, including Masterminds and Kidnap, actually are worth. Bids are due Sept. 25, with the auction set for Oct. 1.

According to documents made public in the bankruptcy, Relativity has 27 film projects in development that are up for sale. Fighter 2 is among them, as are reboots of Fletch and The Crow; sequels to Immortals, The Strangers and Act of Valor; and such originals as Hunter Killer (with Gerard Butler and Billy Bob Thornton attached) and Not Without Hope (with Dwayne Johnson). Those films, plus president Tucker Tooley and the trimmed-down executive team still working at Relativity, are the primary assets because the company has disposed of or made restrictive agreements on many of its past films. Relativity turned over rights to its pre-2012 films to previous investor Elliott Management. Also, an eventual buyer would not get rights to 3:10 to Yuma, the 2007 Western starring Russell Crowe and Christian Bale, nor to The Forbidden Kingdom, the 2008 martial arts actioner starring Jackie Chan and Jet Li. And only foreign rights (possibly encumbered by liens) are available on Masterminds, Kidnap, The Disappointments Room and Before I Wake.

Potential buyers will have to take note of some significant headaches, too. A review of bankruptcy filings reveals that Viacom is threatening to sue Relativity over $6.4 million worth of advertising said to be owed from the first few months of 2015, and EuropaCorp has served a notice of default on a co-financing and co-production deal covering such films as 3 Days to Kill and The Family.

That's not counting liabilities from secured creditors who might or might not be satisfied by the auction's results. Despite Relativity's financial troubles and limited assets for sale (its fashion and education divisions are not on the block), the "stalking horse" bid will be $250 million from three of the company's lenders (Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors), hop­ing others step forward with higher bids that would allow them to recoup their investments. One financial source says a valuation done for a potential buyer reveals the company basically is worth about $250 million, mostly from its television business (run by Tom Forman) and output deals with Netflix and foreign distributors. But Kavanaugh maintains the value is far higher. The price of individual films, with unproven box-office potential and possible ownership questions, would be a big question mark.

During the most recent bankruptcy hearing Aug. 14, Relativity lawyers said the financial firm Blackstone had made progress in identifying potential bidders, though no details were given. Creditors were successful at the hearing in delaying the auction by about two weeks. Insiders believe that will allow more time to line up a buyer for all or part of Relativity, though in court, lawyer Richard Wynne spoke of the "balancing act" of waiting too long because they don't want to risk the company losing value.

Rival studios including MGM (in which Anchorage Capital owns a stake) and Lionsgate are seen as potential buyers; both companies have declined comment. Another name several insiders mention is that of Burkle, the super­market mogul who has invested as much as $800 million in Relativity and sits on its board. Burkle also has a stake in Colbeck Capital Management, whose principals, Jason Colodne and Jason Beckman, have clashed with Kavanaugh. "A lot of people are kicking the tires," says another finance source, adding, "and a lot of people are just wanting information."

Relativity also could prove of interest to a Chinese film company seeking to establish a foothold in the U.S. And rival studios could move in and attempt to cherry-pick individual films, but bankruptcy attorney Brian Davidoff says it is not clear in the proposed bidding procedure whether suitors can pursue specific projects. Besides, he adds, "It's doubtful that the number of bidders for specific titles would be worth more than the value for bids of the assets combined."

Davidoff also notes that the eventual buyer will take over assets in the form of executory contracts and must demonstrate the ability to perform under these agreements. That could limit the pool of potential buyers, he believes, to existing film companies or someone with a close relationship to them who is able to give "adequate assurance" they can fulfill existing deals.