The Breakdown

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Rhythm & Hues closes deal to be acquired by Prana Studios affiliate

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Seven weeks after filing for bankruptcy, visual effects firm Rhythm & Hues has closed a deal to be acquired by 34x118 Holdings, an affiliate of Los Angeles-based Prana Studios.  

A bankruptcy judge approved the sale on March 29, but the transaction closed late Monday. Rhythm & Hues filed for bankruptcy just weeks before winning an Academy Award for its work on "Life of Pi." Earnings fell as the company struggled to compete with overseas-based firms that could do computer-generated visual effects work at lower costs. 

Prana Studios senior vice president Jeff Okun and Rhythm & Hues president Lee Berger released a joint statement Tuesday on the deal:

We're excited that the acquisition has formally closed and we can now focus our efforts on rebuilding a stronger Rhythm & Hues.  We’ve been given an amazing opportunity to reshape our business model, while at the same time maintaining our own identity and operating independently. All of us at Rhythm & Hues look forward to returning to the business of creating award-winning visual effects and revitalizing the development of our own intellectual property.

A key component of the deal was keeping the core of Rhythm & Hues's business in the United States, according to attorney Brian Davidoff , who represented the company during the reorganization.

"We wanted to try to find a way to retain the talent here in the United States and also find a way to restructure the company so as to allow it to go forward post-bankruptcy," says Davidoff.

The sale agreement requires Rhythm & Hues's buyer to make long-term job offers to at least 165 people in the Los Angeles area, he says. 

"But the estimation is that they will need a lot more than that to service the business," says Davidoff.

Rhythm & Hues had more than 700 employees in Southern California, but it laid off more than 200 when it filed for bankruptcy protection. Many of those employees had worked for more than a year on "Life of Pi."  

"This is an industry at a crossroads," Davidoff says of the visual effects business. "Clearly as a result of Rhythm & Hues bankruptcy filing, the studios and all the players in this field have recognized that there has to be an adjustment to the business model in order for the talent which is here in Hollywood to remain here, not for it all to be shipped off abroad."

Prana Studios has production offices in Los Angeles, but it also has a very active base in Mumbai, India. It's currently providing animation production services for Disney's upcoming 3D animated feature film "Planes," which is due in theaters this summer.  

Prana Studios' affiliate 34x118 came out on top of a complicated bankruptcy auction process that included bidding interests from India, South Korea, Australia, and China.

The deal between 34x118 and Rhythm & Hues is worth close to 30 million dollars, says Davidoff. It includes proceeds from the upcoming sale of Rhythm & Hues's facility in El Segundo, and Davidoff says the company will have the opportunity to enter into a long-term lease with the building's new owners. 

 

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