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Relativity to Sell Elliott Stake to JPMorgan Consortium (Exclusive)

Ryan Kavanaugh is set to sell Elliott Associates’ minority stake in Relativity Media to a consortium of investors led by the investment bank JPMorgan, TheWrap has learned.

Ryan Kavanaugh is set to sell Elliott Associates’ minority stake in Relativity Media to a consortium of investors led by the investment bank JPMorgan, TheWrap has learned.

JPMorgan is seeking to buy out Elliott’s stake under a clause that gives Kavanaugh the option to do so at a certain price, according to two individuals with knowledge of the deal. 

The deal is expected to be for about $700 million, according to the individuals. 

The move follows months of reports of tension between the independent studio and the hedge fund. Elliott, which manages some $15 billion in capital for institutional and private investors, has been Relativity’s primary financial backer as the company has grown from a production house to an independent movie distributor.

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The bank is acting as lead for a consortium of global tech and entertainment related companies, while putting up a portion of the funds, according to one of those individuals involved in the deal. Greg O'Hara, a senior executive in the bank based in New York, is leading the deal. 

A Relativity spokesman declined to comment for this story. A spokesman for Elliott Associates could not immediately be reached. A spokeswoman for JPMorgan had no immediate comment.

The deal has just completed due diligence, but is not expected to close before the fall at the earliest, according to the individuals.

According to those involved in the deal, Elliott has not yet been informed of Relativity’s intention to buy out its stake in favor of another investor.

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Up until this year, Relativity has been partnered with major Hollywood studios Universal and Sony, mainly as a producer and financier. Many of the movies have not performed well at the box office, particularly Universals’ 2009 slate with “Robin Hood,” “State of Play” and “Land of the Lost.”

Recent movies that have brought in profits include "Hop," "Social Network," "Bridesmaids" and "Little Fockers." 

The studio had a sleeper hit last year in “The Fighter,” released through Paramount, and had a hit this year with “Limitless,” which has taken in $143 million worldwide. Another release early this year, “Season of the Witch,” was a bomb domestically, but managed to take in $60 million abroad.

The studio’s biggest bet to date will open in the second half of this year, “Immortals,” a "300"-style, bloody swords and sandals epic with a $100 million budget. Much will ride on that release.

Elliott is believed to have invested about $1.2 billion in Relativity over the years. It was only in March that Relativity closed about $200 million in new financing from a group of investors led by the hedge fund; Elliott contributed about $60 million of that sum, TheWrap reported at the time.

One individual involved in the deal said Elliott would make a profit on the sale, which presumably meant that it would retain control of some Relativity assets.

But even that investment was fraught with some tension. Others involved in that deal described the funding as a collateralized loan against the future profit of Relativity movies.

Meanwhile, internal tension led to Relativity’s president Michael Joe being moved to a position in which he acts as a liaison between Relativity and Elliott.

Rumors have been rampant in Hollywood since then that Kavanaugh was being forced to cede control of his company to Elliott; both entities have privately denied this, but have declined to speak on the record about it.