Rhythm & Hues Sale to Prana Approved by Judge

A California bankruptcy court judge approved the sale of one of the visual-effects industry's most respected firms, ending a tumultuous auction process for the financially troubled company.

Rhythm & Hues belongs to an affiliate of Prana Studios.

A California bankruptcy court judge approved the sale of one of the visual-effects industry's most respected firms on Friday afternoon, ending a tumultuous auction process for the financially troubled company.

The deal is valued at roughly $18 million. That breaks down to  $1.2 million in cash and roughly $16 million in assumed liabilities, Brian Davidoff, an attorney for Rhythm & Hues told TheWrap.

Also read: Rhythm & Hues Sale Hearing: Ruling on Stalking-Horse Breakup Fee Pushed Back to April

 "It is an excellent outcome, and we look forward to a prompt closing and successful future of the company," Davidoff told TheWrap.

Since it started in 1987, Rhythm & Hues has won awards and industry esteem for spinning fantastical creations in films like "Babe" and "Life of Pi."

Prana, an Indian-American visual-effects and animation company that has worked on "Tron: Legacy" and Disney's "Planes," said that combining its holdings with Rhythm & Hues' expertise will make it a leader in digital imagery.

"Our complementary talents and relationships will create a new, best-in-class one-stop boutique provider of digital imagery to clients globally," Jeffrey A. Okun, senior vice president, VFX, Prana Studios, said in a statement. "With the additional support of our strong investor group, we are confident R&H will continue to be the innovative quality leader in our field that they’ve been for 30 years.”

The wholly owned subsidiary that Prana used to purchase Rhythm & Hues has been christened 34×118 Holdings Inc. The company said that Rhythm & Hues will remain a stand-alone company.

Also read: Rhythm & Hues Filing for Bankruptcy After Deal With Prime Focus Collapses

To create this boutique powerhouse, Prana beat out at least two other bidders for the rights to own Rhythm & Hues.

One of the main bidders was Prime Focus, an India-based visual-effects company, that initially tried to acquire Rhythm & Hues shortly before it filed for Chapter 11 protection in February, but could not put a deal together in the two-week time frame it was given. 

The other was a Chinese company, the individual said. The Los Angeles Times reported Thursday that China Lion had emerged as the lead bidder for Rhythm & Hues, but a spokesman for that company emphatically denied that it had participated in the bidding.The bid came not from China Lion, according to an individual with knowledge of the company, but from Brave Vision. Jiang Yanming, president of China Lion, is an investor in Brave.

Also read: Tippett Studio Chief on Layoffs: 'Why the Hell Doesn’t California Do Something?'

Prime Focus objected to the sale in court, arguing that it was not given an opportunity to submit a final bid after Prana was brought into the process at the eleventh-hour Thursday. However, Judge Neil W. Bason, who presided over the hearing, dismissed the objection.

Prime Focus was magnanimous in defeat on Friday, releasing a statement praising the new ownership after the sale was approved.

"While the financial fates of various companies can rise and fall, we can't lose sight of people being our core strength," the statement reads. "We sincerely hope that the sale brings greater stability to Rhythm & Hues, its artists, employees, and staff, and to the VFX community in Los Angeles and around the globe."

Its Oscar-winning accomplishments were not enough to inoculate Rhythm & Hues from a fiercely competitive business; one that has been upended in recent years by a fixed bidding process that squeezes profit margins. The California-based company has struggled to compete in a globalized environment that has seen contracts shipped to countries like Canada and the United Kingdom that offer more generous subsidies.

When Rhythm & Hues filed for bankruptcy protection in February, it reported that it had $27.5 million in assets and roughly $33.8 million in liabilities.

As the company has been mired in Chapter 11, three studios have helped it meet its payroll obligations and continue working on a number of projects. Legendary Pictures, Universal Studios and 20th Century Fox Studios, the three in question, have extended about $20 million in loans during the process.

Rhythm & Hues' failure has sent off shock waves through the visual-effects industry. How, many artists and designers asked, could Rhythm & Hues be bowing to financial pressures just as it should have been basking in the reflected glory of one of its great triumphs? Weeks after filing for bankruptcy protection, a team from Rhythm & Hues was onstage at the Oscars accepting an award for best visual-effects for its work on "Life of Pi."

In response, roughly 500 members of visual-effects community rallied outside the Oscars, carrying signs emblazoned with messages such as "We want a piece of the Pi." They also took to social media, outfitting their Twitter and Facebook profiles with a bright green blank screen, a signal of what many blockbuster films would look like without effects artists.

As Rhythm & Hues' fate was being decided, yet another tremor disrupted California's fragile visual-effects industry, as Tippett Studio announced it had laid off 50 employees.

“Everybody is very concerned, from the big companies to the small ones,” Tippett Studio CEO Jules Roman told TheWrap. “People actually like living in California and don’t want to uproot and pay 50 percent income tax to British Columbia so they can take that money and give it back to the big six [studios].”