The stacks of recycled business cards are piling up after nearly two years of seismic shifts in the Canadian distribution business. The faces have remained the same - almost all the key executive are still in positions of power - but the dynamics have changed.
First came last year's $2.3bn sale of Alliance Atlantis Communications (AAC) to CanWest Global Communications and New York-based banking giant Goldman Sachs' investment fund, GS Capital Partners. Then came the launch of Entertainment One (E1), Canada's largest wholesale distributor of DVDs and CDs, into the theatrical distribution market.
The AAC deal effectively split the company in two, leaving CanWest with the broadcast assets and Goldman Sachs, the deal's financier, with the releasing arm, Motion Picture Distribution (MDP). Goldman Sachs then found a Canadian private equity firm, Edgestone Capital Partners, to act as its Canadian face (due to federal restrictions on the sale of cultural assets) and control MPD. Edgestone held 51% of voting shares but less than 40% of the equity.
Officially in business in August 2007, the reformatted company was renamed Alliance Films with Victor Loewy as chairman and Charles Layton as president. Layton, a nine-year veteran of Miramax and The Weinstein Company, was hand-picked by Goldman Sachs to represent its interests.
Yet the inciting incident for both events occurred a year earlier, in 2006, when Loewy, who co-founded the original Alliance Communications with Robert Lantos, recognised the majority owners of AAC were looking to sell the distribution business. Reconstituted as an income trust, MPD had lost its lustre because of the Canadian government's decision to change the taxation rates on income trusts.
As vice-chairman of MPD and a leading shareholder in AAC, Loewy was keen to find a backer for a management buyout. He and his protege, MPD president Patrice Theroux, found a buyer in London-based hedge fund, Marwyn.
In July 2006, Marwyn offered AAC c$370m for MPD. But AAC balked, triggering an internal struggle - Loewy quit AAC and it was regrouped under new management. However, AAC capitulated when it came to light Loewy's departure would trigger a key-man clause in its output deal with New Line Cinema. Loewy returned but Theroux went, leaving him to pursue a connection with Marwyn - if he could (Theroux and Alliance eventually settled).
Enter Darren Throop, CEO of E1. Like MPD, E1 was structured as an income trust; like AAC, E1's bankers were concerned about the implications of coming changes in Canadian tax law regarding trusts. Throop started searching for a partner to capitalise a buyout of the trust. In November 2006, Throop and Theroux connected, then Theroux connected Throop with Marwyn and, in March 2007, Marwyn paid $50m to take E1 private and then re-issued an initial public offering on London's Alternative Investment Market (AIM). Marwyn holds 25% of E1. In trying to stop a management buyout, AAC's overlords unwittingly created an opportunity for a vastly more powerful competitor.
Theroux, like Loewy, a devotee of the PolyGram Filmed Entertainment model, had been integral to AAC's expansion into European distribution. He found a kindred spirit in Throop, who had already acquired distribution beachheads in the US (albeit video only) through Koch Entertainment and the UK with Contender Entertainment (now a theatrical distributor too); both of which, as in the PolyGram Records-PFE model, were music distribution businesses first. By August 2007 (when his non-compete deal expired) Theroux was at work as president of E1's newly established (and very PolyGram sounding) Filmed Entertainment division.
Theroux built on Throop's spending spree, scooping up output deals with US independents such as Summit Entertainment and Yari Film Group that would have previously gone to Alliance as a matter of course, and buying theatrical distribution businesses first in Canada - Montreal-based Seville Entertainment - and then internationally in the form of the venerable Benelux distributor RCV. The company also acquired Canadian rights to ThinkFilm's library - and signed an output deal to boot.
In January 2008, Edgestone sold its stake in Alliance Films to Societe Generale de Financement du Quebec (SGF), the investment arm of the Quebec government, for $100m. This led to the decision to move Alliance's headquarters from Toronto to Montreal.
Then came the news Time Warner would absorb New Line Cinema into Warner Bros. With Alliance's output deal with New Line set to expire at year's end, it looked like the end of a long and lucrative arrangement. Then, in April, Miramax broke ranks and self-released its first film in Canada, Smart People, ending another long-standing output arrangement.