China Lion investor emerges as a leading contender to buy Rhythm & Hues [updated]

By Richard Verrier

March 28, 2013 12 AM PT

[UPDATE: A hearing on the sale of Rhythm & Hues has been postponed until 10 a.m. Friday as bidding discussions continue.]

A principal investor in China Lion, a Chinese film distribution company with offices in Los Angeles, is among the bidders involved in talks to acquire the Oscar-winning Hollywood visual-effects house that filed for bankruptcy protection last month.

Jiang Yanming, the Beijing-based president of China Lion and one its three principal investors, is tied to a bid to acquire Rhythm & Hues through another company in which he has an interest, Brave Vision, sources close to the auction said.

Although a deal has not yet been finalized, Jiang’s group surfaced last night as a lead contender to buy the El Segundo-based company in a bankruptcy auction overseen by the court, said the sources, who asked not be identified because the proceedings were confidential.

If an agreement is reached and approved by the U.S. Bankruptcy Court, it would underscore the increased globalization of the post-production sector -- another lead bidder is India’s post-production company Prime Focus -- and mark the latest high-profile deal in Hollywood involving a Chinese company.

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China’s Galloping Horse Media last year partnered with India’s Reliance MediaWorks to acquire Digital Domain, the Venice-based studio co-founded by director James Cameron. Last year also saw Chinese media company Dalian Wanda Group acquire AMC Entertainment, the nation’s second-largest theater circuit, for $2.6 billion.

Prana Studios, an animation and visual-effects company with offices in L.A. and Mumbai, India; and Psyop, a production and design firm, also have submitted bids. Another bidder, South Korean entertainment and media company JS Communications, last week withdrew its offer to acquire Rhythm & Hues. JS Communications executive David Shim cited a lack of cooperation from the major Hollywood studios.

If accepted, the successful buyer will submit its bid for approval by the Bankruptcy Court later today, effectively ending Rhythm & Hues’ bankruptcy proceeding.

The buyer would assume responsibility for a nearly $16-million loan extended to Rhythm & Hues by Universal Studios and 20th Century Fox.

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The loan was part of the effects company’s plan to avoid liquidation, enabling it to complete work on current projects, including “R.I.P.D.” and “Percy Jackson: Sea of Monsters.” Warner Bros., which is separately owed $4.9 million, is not providing any financing, the company has said in court filings.

Rhythm & Hues, which won an Oscar for its pioneering effects work for Ang Lee’s “Life of Pi,” filed for bankruptcy protection under Chapter 11 of the federal bankruptcy code last month after laying off 250 employees.

The company posted a $22.5-million net loss in 2012 as revenue fell to $95 million, down from $121 million in 2011, court records state. Rhythm & Hues cited several factors, including a decrease in film production at Fox and Universal -- historically two of its largest customers -- as well as rising competition from rivals in Canada, Britain, Australia and New Zealand.

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In October 2011, two of China’s biggest filmmaking companies -- Huayi Brothers Media Corp. and Bona Film Group Ltd. -- acquired 20% of China Lion in China Lion Film Distribution, with the goal of increasing more Chinese-language movies to North American theaters.

Jiang is the third investor in China Lion, which in 2010 partnered with AMC to distribute Chinese movies in the U.S. AMC has released 25 Chinese films China Lion since 2010, but none have managed to do major business in the States.

The biggest success, “If You Are the One II,” a sequel about a May-December romance between a millionaire and a flight attendant, only collected $426,894 from 21 domestic theaters in 2010.

[FOR THE RECORD: An earlier version of this story incorrectly said China Lion was a leading bidder to acquire Rhythm & Hues. In fact, Jiang Yanming, the Beijing-based president of China Lion and one of its principal investors, is involved in a bid to acquire the studio through another company in which he has an interest, Brave Vision.]

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