Company's California and Vancouver VFX Facilities to Stay Open in Proposed $15 Million Deal
After weeks and months that saw its stock take a beating as the company's former CEO vigorously defended its strategies, Digital Domain Media Group (DDMG) this morning said it had filed for Chapter 11 bankruptcy protection. Operations in Venice, San Francisco, and Vancouver, are expected to continue as usual, the company said.
In fact, it turns out the future of the company might look a lot like its past, as DDMG has agreed to sell Digital Domain Productions (DDP), the subsidiary that includes its VFX studios in California and Vancouver, along with the Mothership Media advertising and branding division, to Searchlight Capital Partners, a private equity firm with offices in London, New York, and Toronto, for $15 million. That deal is subject to court approval and assumes no other buyers make higher or better bids at public auction.
As previously reported, longtime Digital Domain executive Ed Ulbrich will run both DDP and Mothership as CEO. "We're excited to begin this new chapter in our history," said Ulbrich in a prepared statement, assuring clients that productions will be delivered "on schedule, on budget and at the highest degree of quality." The company said DDP and Mothership will continue operations without interruption, based on up to $20 million in debtor-in-possession financing provided by creditors led by Hudson Bay Master Fund.
DDMG CEO John Textor resigned last Thursday after the company defaulted on the terms of six loans, indicating that its cash situation had become dire. (As of June 30, the company said, it had assets of $205 million and liabilities of $214 million.) Michael Katzenstein, a senior managing director with West Palm Beach, FL, firm FTI Consulting who was hired as Chief Operating Officer of DDMG, was yesterday named Chief Restructuring Officer and is overseeing the financial reorganization procedures that began with last week's shuttering of the fledgling Tradition Studios — Textor's ambitious bid to build a Pixar competitor — in which nearly 300 staffers lost their jobs.
Textor had long held that the company was undervalued by the market, noting with incredulity that The Mill was sold to a private equity firm for nearly $200 million last year, far outstripping DDMG's lackluster valuation by investors. He argued that the company's financials looked worse on paper than they were in reality, owing to charges for unitilized labor and other accounting expenses, and predicted the company's diversification into production (with Ender's Game), feature animation, secondary education, and dead celebrity reanimation — along with its move to squeeze 3D-conversion patent royalties out of the industry — would increase both revenues and margins, paying big dividends in the years to come. But the market, looking back at quarter after quarter of losses for the company, was impatient and put pressure on DDMG sooner rather than later.
The Palm Beach Post reported this morning that the bankruptcy filing "deepens the embarrassment" for government officals who approved $135 million in incentives when the company moved into Florida. Yesterday. the newspaper said, Florida Governor Rick Scott ordered an investigation into the state's decision to give DDMG $20 million in 2009.
Listed among DDMG's largest unsecured creditors were former director and shareholder Carl Stork, owed a litigation settlement in excess of $5 million, partner Mumbai-based partner Reliance MediaWorks ($4.6 million), Legendary Pictures ($3 million), Bell Technologies ($743,000) and Autodesk ($582,000).