EXCLUSIVE: It escaped almost everybody’s notice that Colony Capital’s Tom Barrack and his buddy and business associate Rob Lowe attended the November 14th premiere of Twilight Saga: Breaking Dawn Part 1. There appeared no reason for the pair to be there: they had no stake in the film, and they are not teenage girls. They did pose on the Red Carpet for a photo with Summit co-chairmen Rob Friedman and Patrick Wachsberger (see right). And they did have a very good reason to be there, Deadline has learned. Because Santa Monica-based Colony Capital is exploring a deal in which Barrack would take a large equity stake in Summit Entertainment.
Until now, the only potential marriage partner poised for Summit has been Lionsgate, with the two companies engaged in a long and public flirtation to merge. We are told that Colony Capital is not proposing a merger. Instead, Summit would be a friendly takeover target, with the braintrust continuing to run the show, and Summit investors cashing out. There are two ways to proceed being mulled by Colony Capital right now. Barrack is a key owner of Miramax, and in one scenario, Barrack would meld the assets of Summit with a Miramax library. The other scenario has Colony Capital setting up a different company to take a large equity stake in Summit and leave it as a freestanding mini-studio. Barrack and Lowe (yes, Lowe is very much part of this and his knowledge of the entertainment industry has been vital to Barrack) are in the middle of talks with Summit co-chairmen Friedman and Wachsberger.
On paper, the pairing of Summit with Miramax would be easier than Lionsgate and Summit, which have duplicative executive staffs and infrastructures on the feature side that would be hard to consolidate. With its library of 700 films and 14 TV series, and its aspirations to be active in production, Miramax would mix well with Summit and its infrastructure for production and development, distribution and marketing pipeline in North America, output deals in certain territories around the globe, and a top-notch foreign sales organization. Summit has a new pay cable deal in place with HBO after the current one with Showtime ends.
At first it seemed unlikely that Summit would become a takeover target. Given that the mini-studio is sitting on a pile of cash from the billions-dollar success of its Twilight Saga series, Summit was expected to start acquiring other companies and even hired an investment bank to help it with that process. But Summit never followed through on such plans to build through acquisitions. Instead, both co-chairmen now want to transform their large equity stake into a windfall for themselves and their investors as soon as possible. After all, it is entirely possible that Summit, thanks to Stephenie Meyer’s novels, may never be as successful as it is right now through 2012.
Summit is talking to multiple parties about some kind of a deal, and it goes beyond just Lionsgate or Colony Capital. Financial info abou Summit comes from a UBS and JP Morgan prospectus to investors that circulated at the beginning of 2011 when the studio refinanced and closed a new $750 million dollar loan. The refinancing would provide a payout to the company’s original investors such as Peak Capital Investment, a consortium that includes Rizvi Traverse and Participant, who have a 48% stake in Summit. Another 30.2% is owned by management.
Interestingly, when Barrack and his partners acquired Miramax from Disney for $660 million almost exactly a year ago, Barrack had stressed inside the company that he didn’t want to use Miramax and its library rights exploitation business as an excuse to go into production “because that would be disastrous”. But Deadline learned that, beginning last April, Barrack began contemplating a $500 million fund to finance movie production project-by-project. That fund would help to harvest a crop of Miramax library titles that are ripe for reboots and sequels. Lowe and Miramax CEO Mike Lang told Deadline at Cannes that they’d begun to appreciate the potential treasure trove of properties and scripts and books amassed by Miramax (including one developed by Anthony Minghella and Sydney Pollack). They’ve found at least 30 projects they consider great already, and as many as 220 others worth developing. “Rob always knew this could be bigger than anyone understood,” an insider tells Deadline.
That spurred the new strategy for Colony Capital to supply the capital to co-finance those projects from part of the $500 million. As recently detailed revealed by Bloomberg, Miramax is going to sell asset-backed bonds that will enable the company to take advantage of today’s low interest rates and assume more debt. It also would be used to partly repay the investors. They initially put in $408M, now down to $308M, and would continue to keep $100M at Miramax. Colony Capital would benefit from a $142M dividend. Miramax’s collateral would include its 700 films and 14 television series as well as rights to books and development projects. The company has been busily cutting digital licensing deals, including a new one with Netflix to stream movies in the UK and Ireland. Bloomberg says that Barclays Capital and Jefferies Group are managing the bond sale. Deadline hears that this deal is just about done, and it will be a surprise to many to see Miramax investors reaping dividends, when almost everybody felt Barrack et al had paid too much to Disney in the purchase deal.