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Legendary/Warner Deal:  Private Equity Still In The Picture

Legendary Pictures
Legendary Pictures

Legendary Pictures has raised $1 billion plus in new financing, and extended its first-look co-producing and co-financing deal with Warner Bros. through 2012. This means that their first partnership--which they say was profitable--worked out for both parties. About a year ago all my Hollywood banker pals were talking about how the private equity money was going to start pulling out of these movie studios--it's unstable, risky, and Wall Street can get burned. For the most part the studios control which movies the investment fund gets to invest in--so Disney leaves out "Pirates" from the slate it co-finances with outside investors.

If the recent flood of money from Manhattan to Hollywood is any indication, those skeptical Hollywood bankers were totally wrong. When it works, investing in a diverse slate of films mitigates risk, and even if you have a few bombs, you cash in on a surprise hit. Apparently, more private equity money is enamored by the glitz (and the potential returns) of Hollywood than ever.

Legendary first struck a deal in 2005 to make and distribute 25 movies over 5 years with Warner Bros. But this is no ordinary Hollywood production shingle -- it paired major Wall Street private equity and hedge fund money with big Hollywood productions (and was named Media/Entertainment Deal of the Year by IDD Magazine in 2005). In the first lead Legendary's investors--including AIG Direct Investments, Banc of America Capital Investors, and Falcon Investment Advisors, ponied up $500 million. There were some disappointments, including "Lady in the Water" and animated "Ant Bully." But "300" was a totally unexpected, out-of-the-park success, and "Batman Begins" was also a winner.

This time around investment bank Dresdner Kleinwort is the adviser and lead arranger on the $1 billion in financing -- a combo of new equity, junior, equity and debt-- which could finance more than $2.5 billion in production costs. Columbus Nova, an investment management firm in NYC, is one of the companies participating in the junior equity portion.

As of now Legendary and Warners are splitting the financing 50-50, though that could vary, project by project. Under this new deal they could co-fincance up to 45 films, including yet another Batman flic, "The Dark Knight," which is already in production. It seems they're taking the success of comic book hit "300" to heart. Other projects in the works include an adaptation of another dark comic book, "The Losers," a movie based on the massive multiplayer online game, "World of Warcraft" and a movie version of the TV series "Kung Fu."

All of those sound like they'd appeal to the teen fanboy set. They've already announced some of the flims already in production--including "Where the Wild Things Are," based in the Maurice Sendak childrens' book.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.