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Relativity CEO Ryan Kavanaugh's prospects to buy out financial backer uncertain

June 1, 2011 |  2:58 pm

RyanKavanaugh Relativity Media Chief Executive Ryan Kavanaugh has been in talks for months with investment bank JPMorgan Chase about buying out his company's sole investor, New York-based hedge fund Elliott Management, but it's far from certain that the effort will be successful, according to several people familiar with the matter.

Kavanaugh's ongoing attempts to line up new backers demonstrate the growing rift between him and Elliott, as evidenced last month when the hedge fund hired Relativity's former president Michael Joe to oversee its investment in the independent film studio.

Elliott has hundreds of millions of dollars at stake in Relativity, which has had a spotty track record at the box office over the last several years.

Joe, who previously was a top executive at Universal Pictures, was hired to exercise more control over Relativity than Elliott previously had. 

In response to the move, Kavanaugh is seeking to assert his authority at the company by bringing in new investors, industry observers suggest.

A spokeswoman for Elliott said the company was not looking to offload its minority stake in Relativity: "They are not shopping, they are not selling, they are not doing a single thing," she said. However, two knowledgeable people said Elliott would be happy to sever ties with Relativity at the right price.

Under the terms of their agreement, Kavanaugh has the option to buy out Elliott at a certain price. The current cost of such a purchase would be roughly $700 million, one person with knowledge of the situation said.

However, several people familiar with the matter said that JPMorgan Chase is not close to approving a deal to invest in Relativity and no potential arrangement has been presented to Elliott.

According to a report in The Wrap, Kavanaugh has been working with Greg O'Hara, a managing director at JPMorgan Chase's chief investment office, to potentially lead a buyout of Elliott's stake in Relativity. 

O'Hara previously worked at the JPMorgan Chase-controlled private equity firm One Equity Partners, which owns 49% of the Lions Gate-controlled TV Guide Network. In a recent profile done with Kavanaugh's participation, Variety described O'Hara as a "key day-to-day advisor" to the CEO.

The ultimate value and fate of Relativity in large part lies with its upcoming slate of self-financed and released pictures, including November's 3-D action film "Immortals," budgeted at more than $100 million. The studio co-financed a number of flops with Universal and several of the early movies it made over the last few years failed to find an audience.

Relativity has had better results lately with its successful thriller "Limitless" and Universal's hit comedy "Bridesmaids," which it co-financed.

A spokesman for Relativity declined to comment.

-- Ben Fritz


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Photo: Ryan Kavanaugh attends amfAR's Cinema Against AIDS Gala party during the Annual Cannes Film Festival at Hotel Du Cap on May 19, 2011 in Antibes, France. Credit: Andreas Rentz / Getty Images.