Breakup Fee for Rythym & Hues Stalking-Horse Bidder Approved (Exclusive)

JS Communications will receive $300,000 fee

A U.S. bankruptcy court judge approved a settlement Wednesday between Rhythm & Hues and JS Communications, ending at least one contentious legal issue stemming from the March sale of the Oscar-winning visual-effects studio. 

As part of the agreement, South Korea-based JS Communications will receive a $300,000 breakup fee for agreeing to be the stalking-horse bidder during the auction of Rhythm & Hues. That settlement is a win for JS Communications, though the figure is less than the $425,000 the company was promised as part of its initial deal with Rhythm & Hues.

"We are pleased to see the matter resolved, the objecting parties acknowledge that JS Communications performed at all times in good faith, and a reasonable compromise on the technical issues regarding the break-up fee," Evan Jones, an attorney for Rhythm & Hues, told TheWrap. "We wish the new company well."

Rhythm & Hues now has five days to pay the fee. Both companies have dropped all claims against each other as part of the deal.

Lee Berger, president of Rhythm & Hues' film division, did not immediately respond to a request for comment.

Rhythm & Hues received an Academy Award this year for its work on "Life of Pi," but in a cruel twist of fate, it was forced to file for Chapter 11 protection just as it was receiving honors and acclaim. It was sold to an affiliate of Prana Studios after a whirlwind bidding process that saw JS Communications pull its offer and sue Rhythm & Hues.

In bankruptcy cases, a stalking-horse bidder is selected from a pool of bidders so a financially distressed company can ensure that its assets are not undersold at auction. The stalking-horse bid represents the lowest acceptable offer.

In its suit, JS Communication said it was unjustly denied its money and accused Rhythm & Hues of attempting to shut it out of the bidding process.

In particular, the company alleged that Rhythm & Hues had changed the terms of the auction, so bidders would be encouraged to submit a lower cash component while assuming more of its liabilities. Under the terms of the stalking horse bid, the breakup fee was triggered if JS Communications was outbid by at least $525,000.

Pamela Chelin contributed to this report.