TORONTO (CP) _ Motion Picture Distribution secured a deal with movie-maker New Line Cinema Corp. by agreeing to have ousted former chairman Victor Loewy return to the company as a consultant, ending months of conflict.
Under the agreement, Motion Picture will continue to distribute New Line’s films in Canada through to Dec. 31, 2008, calming investor fears that the major Hollywood player would abandon its contract since Loewy was no longer with the company.
Following the announcement Friday, units in Movie Distribution Income Fund (TSX:FLM.UN), a part owner of Motion Picture, jumped 6.8 per cent, or 49 cents, to close at $7.74 on the Toronto Stock Exchange.
The deal follows a public dispute with Loewy, in which Motion Picture tried to prevent him from establishing a competing Canadian distributor and lure away major distributors like New Line.
New Line has a clause in its contract allowing it to sever ties with Motion Picture if Loewy left the company. As part of Motion Picture’s settlement with Loewry, he will return to the distributor as a consultant, locking New Line into its contract until 2008.
Loewy will work for the same period under the title of chairman emeritus, but will not be a director or officer of Motion Picture or its affiliates, the company said.
The settlement will hold him to the confidentiality, non-competition and non-solicitation agreements that Motion Picture was seeking to uphold in court.
"Mr. Loewy’s responsibilities will include providing advice and assistance as requested and having authority over New Line product," Motion Picture said.
Loewy will also receive fees and "other consideration" comparable to what he received before he left the company.
Motion Picture also said it has reached a settlement with former CEO Patrice Theroux and general counsel Paul Laberge who were fired in July for what the company said was "cause."
Loewy’s relationship with the company soured around that time. His lawyers claimed he was dismissed, while Motion Picture Distribution was adamant he resigned.
In late August, Motion Picture took Loewy to court and was granted a temporary injunction preventing him from soliciting movie studios for any new company he might set up. The two sides were set to meet in court as early as this week, though a date was never scheduled.
Details of the settlement with Theroux and Laberge were not disclosed, though the company said it included "confidentiality, non-competition, non-solicitation and standstill provisions."
Motion Picture had alleged the two men misused funds for travel and shut out a deal with a European distributor. Those allegations were never proven in court and were dismissed as part of the deal.
Alliance Atlantis Communications (TSX:AAC.B), which has a 51 per cent stake in Motion Picture, released a statement from CEO Phyllis Yaffe saying: "We are pleased that New Line has agreed to continue its output agreement with the partnership, and are satisfied to see that the partnership has resolved the outstanding issues with its former executives."
Calls to lawyers for the former executives and Loewy were not returned.
The settlement means that "peace has been restored" at the company, said Ben Mogil, an analyst at Westwind Partners.
Motion Picture risked losing about 15 per cent of its total revenue if it lost the New Line contract. Past blockbusters from New Line include the "Lord of the Rings" trilogy and the "Austin Powers" series. Its fall lineup includes the Kate Winslet drama "Little Children," which is already generating Oscar buzz.
However, the deals with both New Line and independent filmmaker Focus Features expire in 2008, which means there could be "significant unitholder risk" on the horizon, Mogil said in a report.
He suggests that longer-term investors sell their interest in the company.
Rumours that Movie Distribution might be bought out began mid-summer after the company reported "disappointing" second-quarter results in August, but expressed optimism for a complete turnaround in the fall.
The company then announced it would go through a strategic review by "as soon as possible."
That could determine whether the U.K.-based Marwyn Investment Management LLP, which planned to pay about $400 million for the company, will make a formal offer.
Marwyn maintained its interest in the deal throughout the company’s legal battle with Loewy, but didn’t comment Friday.
Mogil suggests Motion Picture will likely sell its European assets first because they’re not directly related to Alliance’s broadcasting operations and are of "very different nature" than the rest of the company.
Mogil raised his target for Movie Distribution to $8 from $6.25 to reflect "an eventual piecemeal sale of the company." But he warned that some valuations of the company placing its worth at a price higher than $10 are "very unlikely."
On Friday, Alliance’s class-B shares fell $1.03 cents to close at
$34.65 on the Toronto Stock Exchange.