Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware last week approved the sale of Digital Domain Media Group, the special effects company founded by James Cameron, following one of the fastest distressed m&a transactions ever in a Chapter 11 case. The auction, held only 10 days after the petition date, nevertheless resulted in robust bidding and resulted in a purchase price of $30.2 million, double the $15 million offer of the initial bidder.
Prior to this case, most corporate bankruptcy professionals probably were of the view that a fast sale of a company in Chapter 11 could take place only in the most unique circumstances, such as were seen in Lehman Brothers and General Motors. Because of the size and complexity of those enterprises, and the potential ramifications of their failure on the U.S. economy and global financial markets, the consensus for the past few years has been that those cases were outliers with fact patterns almost certain not to be repeated.
Digital Domain Media, on the other hand, its cutting edge technology notwithstanding, is a fairly standard business enterprise, and not a particularly large one at that. Judge Shannon unsurprisingly was highly skeptical of Digital Domain Media’s request, telling its counsel that they would need to present evidence “that I don’t know that I’ve ever seen”. However, Digital Domain Media succeeded in showing that the company faced an immediate shutdown (and the loss of nearly 700 jobs) if the expedited sale were not approved. Credible testimony was presented to the effect that the film studios for whom Digital Domain Media provided digital services were at risk of millions of dollars of losses from any production delays, and would immediately pull their work from Digital Domain Media if an immediate sale did not take place.
All Chapter 11 professionals are highly familiar with working to save “melting ice cube” companies. Digital Domain Media demonstrates that a sale of a business in a matter of days following the petition date need not be predicated upon national or global financial Armageddon, but rather can possibly take place with respect to an ordinary business enterprise upon a credible showing of loss of value and jobs.