3RD UPDATE: Despite what Ryan Kavanaugh claims, Elliott Associates is making clear to me that today’s developments were another involuntary move foisted upon Relativity because of the mess it’s in. Just as I and my sources suspected, “To clarify the additional investment, it is a single digit investment. Very single digit. The vast majority of Elliott’s investment in Relativity Media was Beverly 2. That has been taken back. Elliott wanted to have more control over the Beverly 2 money, which comprises 3/4s of their investment in Relativity. The Elliott money left in Relativity is very minor.” In addition, Elliott tells me that, despite what today’s press release says, “Michael Joe’s hiring was Elliott’s decision. Elliott did a search and interviewed candidates. Elliott wanted Michael Joe and told Ryan he was being hired. Elliott made the decision, but Ryan had to release him from his non-compete. The wording below was negotiated.”
2ND UPDATE, More Details Throughout: By Ryan Kavanaugh’s own admission to me just now, Universal Pictures has been “bitching and moaning” about Relativity Media’s recent decisions to date several pictures opposite Universal’s. So Ron Meyer and Adam Fogelson have accused Relativity, which has its own distribution arm, of using its film fund Beverly 2 with Universal to gain a competitive advantage over the major. The result is that Elliott Associates has been called in to rescue Kavanaugh once again — this time, after Meyer and Fogelson insisted that Relativity erect what Ryan described to me was a “Chinese Wall” between his company and the major.
Relativity will spin off Beverly 2 and hand over operation to Elliott Management Corp and its new hire, Michael Joe, who used to be Relativity Media’s president and before that was a much valued EVP at Universal Pictures who is respected by Fogelson and Meyer. So now, in addition to Joe not being able to tolerate Kavanaugh anymore, neither can Meyer and Fogelson. It’s a sad state of affairs when not even Ryan’s longtime business partners trust him anymore. And neither does Elliott.
Forget the bullshit in this press release claiming Elliott in turn will invest still more additional capital into Relativity. I’ve just heard from Elliott sources that it’s a small amount. (As a different source predicted correctly to me, “I am sure the bit about ‘investing additional capital in Relativity’ was Ryan’s idea. With one penny investment, the statement would be true.”) I’ve also confirmed that Elliott has been trying to get out of the co-financing deal with Universal for 6 months now and it didn’t want Ryan in the way. It wanted to deal directly with Universal. The quid pro quo is that Ryan is supposed to get an executive producer’s fee on each picture and this is Elliott’s way of getting rid of that payment to save some money. “This is spot on,” an Elliott insider tells me. “It is how Elliott is recouping the little money they are putting in.”
Talk about throwing good money after bad, especially after I’d already learned that big investors in Elliott had been calling Paul Singer and questioning the hedge fund’s exposure in Kavanaugh’s Relativity before the investment company took more control. (Elliott Finally Reins In Ryan Kavanaugh: Moves Relativity Prez Michael Joe In-House)
But here’s the thing to remember about Elliott vs Relativity. Elliott describes itself as a $17 billion hedge fund that’s been around for 35 years and has an average return of 14%. Still, the last thing it needs is open warfare with Kavanaugh. It also does not want anybody, much less its senior investors, to perceive that there are problems with the Relativity investment. What a hedge fund doesn’t want is to get calls from its significant limited partners or pension funds or sovereign wealth funds or high net worth individuals and the like asking questions which might lead to a run of people withdrawing their money. So it’s really not in Elliott’s interest to claim that its investment is in distress (though it certainly sounds like it).
But then yesterday Ryan went off the rails. (Kavanaugh Trying To Sell Elliott’s Stake In Relativity When Investment Group Isn’t Selling) Elliott was livid with Kavanaugh’s public disclosures. (“If this were my investment, I would be going ape-shit with the guy,” one source tells me.) Especially because, for weeks now, they’d been telling him to shut his trap or else. “So that’s why you have today’s press release that says all is swell and that there is some ‘deal’ between Relativity and Elliott. It will give Ryan the face-saving he so desperately craves, and it will get Elliott the cover it needs to get this off your website.”
So, at this point, people are telling me that neither company can be believed anymore. “With Ryan and Elliott, it’s never clear. You look back at their prior press releases and it’s just a bunch of spin.”
For example, I was assured, and assured again, and assured a 3rd time by Elliott’s people that installing Michael Joe was completely Elliott’s idea. Kavanaugh kept calling me that it was his idea to move Joe over and promised there’d be an Elliott “correction” about it. Here, tacked onto the end of the press release below, is one sentence that took both parties more than two weeks to agree on: “Joe was recently installed in his new position pursuant to a joint decision by Elliott and Relativity.” Do I believe it? Nah…
And here’s the joint press release just issued:
(Beverly Hills, CA) June 1, 2011 – Relativity Media and Elliott Management Corporation announced today by joint decision they are spinning off the co-finance vehicle with Universal, dubbed Beverly 2, to funds managed by its long-time strategic partner Elliott Management Corporation. Elliott Media Investments LLC, a newly created affiliate of the funds, will manage Beverly 2. At the same time, Elliott has agreed to invest additional capital into Relativity to help further its 2012 home-grown production slate.
The spin-off of Beverly 2 will allow Relativity to avoid the inherent conflicts of interest that have arisen as a result of Relativity’s move into distribution (as recently evidenced by the competing Universal and Relativity Snow White projects).
Relativity will remain a production company on each Universal-selected film and Ryan Kavanaugh will remain an Executive Producer. Relativity will now receive a producer fee on each Beverly 2 film for its production services. Relativity will solely be a production partner with Universal.
“As our core business of developing, producing and distributing our own product has grown to be competitive in size and scope with the majors, this move allows us to focus our energy on that business,” said Kavanaugh, CEO and majority shareholder, Relativity Media.
“This move allows Relativity to focus on producing and distributing its own home-grown product,” said Michael Joe, President of Elliott Media Investments. Joe was recently installed in his new position pursuant to a joint decision by Elliott and Relativity.