'Terminator' rights go to hedge fund despite objections by Sony, Lions Gate (updated)
Despite heated objections by Sony Pictures and Lions Gate, a federal bankruptcy judge in Los Angeles on Wednesday approved the sale of the rights to make future "Terminator" movies to Santa Barbara-based hedge fund Pacificor.
Pacificor purchased the rights in an auction Monday night from Halcyon Group, the bankrupt production company behind last year's "Terminator Salvation," for $29.5 million plus $5 million for each sequel produced. The hedge fund agreed to bid as part of a deal to forgive a disputed debt of approximately $38.1 million it claimed to be owed by Halcyon.
Attorneys for Sony and Lions Gate, which decided to bid for the rights jointly on Monday after previously competing, claimed in court Wednesday that the auction was "rigged" because of the agreement struck last Friday between Pacificor and Halcyon.
"Our bid was the highest and best bid," said Pamela Webster, Sony's attorney. "The only reason that bid wasn't accepted is because the auction had been rigged by the settlement agreement."
Attorneys for Halcyon, Pacificor and a committee of other creditors who endorsed the deal claimed that the bidding procedure was clear and that Sony and Lions Gate simply weren't willing to make a high enough offer under the procedure used to value them.
According to a description of the auction filed in court by attorneys for Halcyon, Sony and Lions Gate made a joint bid Monday of $36.5 million. However, that offer contained no additional compensation for each sequel produced, which Halcyon considered crucial, as that money would be used to pay other creditors besides Pacificor. Sony and Lions Gate then bid $28.5 million plus $5 million for each sequel. When their offer was beat by Halcyon, the document said, the studio representatives "promptly left the auction room."
"I am sympathetic to calls that this has been an unfair process ... but I don't agree with it," Judge Ernest W. Robles said in his ruling. "What ultimately matters is a dollars and cents determination of what makes sense from the perspective of all the parties that have a significant amount of money at stake. That has happened here."
Executives at Sony and Lions Gate engaged in talks Tuesday with Pacificor to settle their dispute by partnering to make future "Terminator" movies, but those discussions were apparently unsuccessful.
Sony Pictures' worldwide affairs president, Peter Schlessel, and Lions Gate's motion picture group president, Joe Drake, who attended the hearing on behalf of their companies, both declined to comment.
Still left to be resolved after Wednesday's hearing is which company will produce potential fifth, sixth and even seventh "Terminator" movies. As Robles noted, with no experience in the movie-making business, Pacificor will undoubtedly have to partner with producers and a studio to make and distribute future films. The hedge fund could also potentially resell the "Terminator" rights. Attorneys for Pacificor weren't available to comment immediately after the hearing.
[Update, 4 p.m.: Despite the rancor in court, Sony and Lions Gate have been given an exclusive window by Pacificor to negotiate to produce and distribute the next “Terminator” movie, according to a person familiar with the talks.
“We expect there to be a fair amount of interest,” said Wayne Flick, a lawyer for the hedge fund. “We know this is a very valuable franchise and, in the coming weeks, we will be considering all of the various options.”]
Also at Wednesday's hearing, it was revealed that debt-ridden Metro-Goldwyn-Mayer, which previously had a first-look right to distribute "Terminator" movies, agreed to forgo those rights in the future in exchange for a $150,000 payment.
In addition, an attorney representing "Terminator Salvation" director McG argued that Pacificor and any producers it partners with should be forced to honor McG's right-of-first-refusal to direct future sequels, which was part of his deal with Halcyon. The judge disagreed and said that if McG isn't offered the opportunity to direct the next "Terminator" movie, his attorney can only file a claim against Halcyon in bankruptcy court.
-- Ben Fritz
Photo: Arnold Schwarzenegger in "Terminator 3: Rise of the Machines." Credit: Robert Zuckerman / Warner Bros.