Ontario court to rule on sale of Kew-owned distributor TCB

Documents filed by Kew Media's receiver, FTI Consulting, reveal TCB Media Rights founder and CEO Paul Heaney did not consent to the company's sale to Beyond International.
shutterstock_people

FTI Consulting – the receivership company appointed to oversee the sale of Kew Media Group’s assets – will appear virtually before Ontario Superior Court of Justice next week to ask the court to approve the sale of TCB Media Rights to Beyond International.

But, as with many facets of the situation surrounding the now-collapsed media company, the details are complicated.

Last week, news broke that Australian producer Beyond International had struck a deal to purchase U.K.-based distributor TCB Media Rights. However, documents filed by FTI with Ontario Superior Court suggest TCB CEO and founder Paul Heaney is opposed to the deal, which, if approved by the court, would see Beyond acquire TCB for an aggregate consideration of £2.1 million (around C$3.63 million).

The £2.1 million acquisition is structured in two parts, with Beyond set to purchase all the shares of TCB for £1.52 million (around C$2.63 million), as well as repay debt from TCB to Kew Media Group of £578,000 (around C$1 million).

TCB, a distribution outfit specializing in factual entertainment and formats, was in founded in 2012 by Heaney, the former managing director of London-based Cineflix Rights. It was acquired by Kew in October 2017 for $9.23 million. The deal included an earn-out of up to £4 million if TCB met revenue targets.

According to the court documents, Heaney did not consent to the sale of TCB to Beyond because it breaches his consent rights under the initial sale agreement between Kew and TCB. In addition, a party including Heaney and TCB executive director Dina Subhani, submitted a counter offer to purchase TCB from Kew.

“Mr. Heaney, a participant in an unsuccessful bid, has objected to the selection of the successful bidder based on a contractual consent right previously granted by KMG at the time that it first acquired the TCB Shares,” read the court documents filed by FTI.

The offer made by Heaney’s party was 5% less than that of Beyond, according to the documents, which also assert that the sale process was conducted openly and fairly and that Heaney was afforded “every opportunity to participate in the process.”

While Heaney’s party made an initial expression of interest on March 11 (before the March 31 deadline it set to finalize a transaction), FTI says it moved ahead with the Beyond offer for two main reasons. First, that there was a “significant risk” Beyond could withdraw its offer if the deadline was extended past March 31. Second, that Heaney’s party did not confirm whether or not it would be ready to execute a deal by the March 31 deadline. “As a result, in the business judgment of the Receiver, the Beyond offer provided a better recovery for stakeholders, was more certain and represented the highest and best bid available,” said FTI.

Approval of the sale is conditional upon there being no third parties enjoining or prohibiting the purchase and sale of TCB’s shares by April 30.

The documents also contain a number of emails sent between the relevant parties, including one sent by Heaney to FTI’s senior managing director Nigel Meakin, dated April 1, in which Heaney questioned Beyond’s financial security and plans for TCB moving forward.

“I have a number of concerns about the sale of TCB to Beyond Entertainment, which I am disappointed appears to have proceeded without my express consent,” read Heaney’s email, in which he referenced a recent corporate release concerning the company’s response to the COVID-19 epidemic.

“Whilst I accept your only concern is Beyond’s ability to fund the purchase of the shares, as directors of the company our wider concern for the business and our staff is that we may simply be swapping one insolvent owner for another. We have no interest in repeating that experience,” continued Heaney’s email, which also expressed concern about a “continued lack of clarity” about Beyond’s post-acquisition plans for TCB, including proposed employment terms and the availability of future acquisition funding.

“Given this uncertainty I am afraid I am simply unable at this time to give my consent to the sale pursuant to section 6.8(b) of the share purchase agreement,” said Heaney. The email concluded with Heaney saying he disagrees with FTI’s interpretation of the consent rights, which he believes to be “both valid and enforceable,” and that his lawyers are “taking urgent advice in Canada.”

Playback‘s sister publication Realscreen has reached out to Beyond for comment and will update the story accordingly if and when it is received. One of the court document appendices features an email from Beyond International CEO and MD Mikael Borglund, dated April 6, in which he refers to Heaney’s opposition to the approval of the sale as “concerning” and “contrary to our current discussions.”

For its part, FTI says it would be “contrary to the fundamental purpose of the receivership…to allow Mr. Heaney, a former owner of TCB and an unsuccessful bidder in the marketing process, to veto the sale of the TCB shares to Beyond in an effort to force a sale, at a lower value, to Party 2, Mr. Heaney’s partner, Ms. Subhani, and Mr. Heaney himself.”

FTI argues Heaney does not have standing to challenge the proposed sale “insofar as he is a ‘bitter bidder’” and his argument is “not effective” against the receiver.

The court hearing, which will be heard orally, had originally been scheduled to take place tomorrow (April 9), but has been adjourned to April 14.

Documents reveal scale of Kew’s debt; details of asset sales

The documents filed by FTI also revealed sale details for other companies formerly owned by Kew, as FTI looks to recoup what it can of the US$113 million (roughly C$158 million) owed to the syndicate of lenders led by Truist Bank. The syndicate also consists of Bank of Montreal and Toronto-Dominion Bank.

FTI says that, after recouping certain costs through the sale of Kew’s assets, the syndicate will suffer a shortfall in excess of $90 million.

Architect Films, BGM, Big Timber Media, Frantic FilmsMedia Headquarters Film and Television and Sienna Films were sold for a combined total of $3.46 million, according to FTI. Based on financial filings from 2017 and 2018, Kew paid around $6.2 million for Architect Films, $8.9 million for BGM, $31.9 million for Essential, $7.1 million for Frantic, $3.5 million for Media Headquarters and around $3 million for Sienna.

FTI also said it is in the process of selling a 50.1% interest in Jigsaw Productions, the New York-headquartered prodco founded by Alex Gibney.

Kew, which burst onto the scene three years ago with the acquisition of five Canadian prodcos and Content Media Corporation, was placed into receivership on Feb. 28, with all its directors, including founders Peter Sussman and Steven Silver, resigning.

The company’s financial issues had come to light around three months prior, when publicly traded Kew reported that its Q3 financial results had seen its overall revenue dip by 5.3% to $47.5 million. Shortly thereafter, Kew initiated a strategic review to examine options such as selling all or parts of the business, with TD Securities running the sale process in consultation with the bank syndicate and its advisors, including FTI Consulting. At the time, Kew also said that certain reports provided by former CFO Geoff Webb to the company and its senior lenders “contained inaccurate information regarding working capital.” Kew subsequently withdrew a number of its previously issued financial reports, as well as its financial guidance for fiscal 2019, which it said would contain earnings that were “materially lower than previously forecast.” During the sale process, 99 potentially interested parties were contacted regarding potential acquisition opportunities, of which 39 executed NDAs.

On Feb. 28, in accordance with an order from the Ontario Superior Court, FTI Consulting Canada was appointed as the receiver of all Kew’s assets, undertakings and properties. Earlier that day, Truist Bank had demanded repayment of all amounts owing under its senior credit facility, and given Kew a notice of its intention to enforce security under section 244 of the Bankruptcy and Insolvency Act.

The company was initially formed in 2016. At the time, it was Canada’s sixth special purpose acquisition company (SPAC), which is an entity that raises investment through an IPO, typically with the intention of acquiring an existing, privately held company or companies.

Image: Shutterstock