4Kids’ Sale of Yu-Gi-Oh! Business, CW Block to Konami, Saban Worth $15+ Million

June 23, 2012 at 7:16 am | Posted in 4Kids, Other Stuff | Leave a comment
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Joey cheering for Mai in her duel against Marik in episode 91

Further details of 4Kids Entertainment’s proposed sale of its Yu-Gi-Oh! business and CW programming block have emerged, the most significant of which is the hefty sum that 4Kids will receive for selling these assets to Konami and Saban: $15 million. Additionally, the sale will allow 4Kids to pay off all of its uncontested bankruptcy claims and still leave it with over $11 million for equity. As part of their deal, Konami and Saban will also be extending employment offers to certain (as yet unnamed) 4Kids employees so that their businesses can proceed uninterrupted.

The decision to consider a joint transaction — with Konami-affiliate 4K Acquisition assuming control of 4Kids’ Yu-Gi-Oh! business and Saban-affiliate Kidsco Media Ventures receiving 4Kids’ Saturday morning programming block on The CW — came about after six rounds of bidding during the June 5th auction. Before the auction was halted, Saban had the best bid of $11.8 million plus other “non-cash consideration,” while Konami had entered a prior bid of $11 million plus other “non-cash consideration.”

Konami and Saban’s joint bid is significantly more favorable to 4Kids than either of the individual bids alone.

Barring another abrupt rescheduling, a hearing will take place on Tuesday, June 26 where the court is expected to approve this transaction. The parties are then expected to seal the deal around the end of this month. If the deal is not realized by July 15, this transaction will be terminated and the auction will resume.

Why Did Konami and Saban Split 4Kids’ Assets?

While Konami and Saban were predominantly interested in different things, they were nevertheless initially bidding on nearly all of 4Kids’ properties.

The need to split up the assets was driven in part by 4Kids’ existing contract with The CW. According to their agreement, The CW is guaranteed $11.5 million from ad revenue each year. If the ad sales are sluggish and The CW doesn’t receive its full cut, 4Kids is required to pay the network the difference. Whoever assumes control of the CW block would have to shoulder this responsibility — no easy task considering how the children’s ad market has substantially weakened in recent years.

Saban, a seasoned veteran of the children’s television entertainment industry, was eager to pick up the programming block. It negotiated a better deal with The CW that dictated the amount it was responsible for paying the network if it took control of the block. Saban also established a limit to the amount that 4Kids already owed the network. The CW was enticed by the prospect of working with Saban.

However, when Konami entered the picture, The CW balked at the possibility of doing business with the less experienced company, insisting that if Konami purchased 4Kids’ programming block, The CW would still want the full $11.5 million annual ad revenue guarantee. For 4Kids, this was disastrous. There was an overwhelming concern that because Konami (or any potential buyer other than Saban) would need to put a significant amount of cash on the table to meet these demands, there may not be another bidder.

4Kids knew that Saban was primarily interested in The CW’s programming block and that Konami was primarily interested in the Yu-Gi-Oh! property. A week before the bids were due, 4Kids approached the two parties and suggested dividing up the assets. And although they were not able to reach an agreement right then and there, and 4Kids’ assets eventually headed to auction anyway, the trio were shrewd and resourceful enough to recognize the value of the splitting the assets. Ultimately, the path to the best possible deal had been paved, and each company was eventually able to get what it most desired.

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