Friday, August 7, 2009
Media / News Bites Will the Creative Loafing Managers Line Up?
Posted by Michael Miner on Fri, Aug 7, 2009 at 7:01 PM
The present owners of Creative Loafing Inc. don't think they can win an outright bidding war for control of the company. So CEO Ben Eason and his allies hope the bankruptcy judge in Tampa—who's held the fate of the company in her hands since CLI filed to reorganize under Chapter 11 last September—will choose the "highest and best" bid. And now they'd like her to conclude that the best bid is the one that includes CLI managers as shareholders.
Atalaya Capital Management would have to bid more than $31 million before it would be bidding money that Creative Loafing doesn't owe it anyway. But what, asks Eason, does Atalaya know about running newspapers?
Eason told me Friday that the plan is for his bidding team to consist of three components: the Eason family; BIA Digital Partners, CLI's mezzanine lender, owed $10 million; "and managers from all across the company."
These managers don't represent a big chunk of change, just about $100,000 that's on the books as deferred compensation: about 25 to 30 managers at corporate headquarters in Tampa and at the six CLI papers, including the Reader, took pay cuts this spring to improve the bottom line. Eason says he had the idea back in February that he might ask them to take a cut and somehow compensate them with equity. Now they'll be offered equity and the chance to join the bid. If it loses, Eason says, they'll be paid their deferred salaries out of auction proceeds. Managers who remain on the sidelines will get paid back either way.
Eason wants his bid to send a signal to Judge Caryl Delano. The signal is that the people who run the company now for Eason want to keep running it for Eason. "Part of what's going on here is that you’ve got a financial bidder in Atalaya that’s never run paper in its life," says Eason. "When you're talking about the highest and best bid, the question is, who'll run the business for the bidder?" In his case, he says, "you’ve got managers clearly invested in the business, in continuing to run the business, and in looking to keeping it going."
To help send that message, members of CLI's senior management, including all six publishers, will be gathered in the courtroom on August 25 when Delano announces the results of the auction.
Sharry Smith, publisher of the Tampa Creative Loafing, says Eason is now arranging a meeting with his attorney to discuss the legal ins and outs of the equity plan. Eason concedes that any hint of pressure from the CEO to join forces would be improper and tells me emphatically he personally isn't involved in roping in the managers.
Reader editor Alison True says she hasn't been invited to join the effort yet, but comments, "It sounds like it would put the managers in an awkward position."
Eason seems to agree: "Managers who participate in this bid will probably be walking around with bull's-eyes on their heads if we don’t win."
And if Eason does win, what about managers who don't?
Bids have to be in by August 20.
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Where are the lawyers? Can this possibly be a legal maneuver in a bankruptcy proceeding? I can't think of a way that Eason could suggest something like this without there just inherently being more than "a hint of pressure."
Also, as much as I wish the Reader well, wouldn't these managers effectively be kissing their money good-bye if they take any portion of their salaries as equity? Times are tough even for sensibly run newspapers...
So bids are due by August 20, but the judge isn't going to set the auction rules until August 25?
I don't think the managers at Atalaya are so stupid that they won't realize the implied threat from Ben Eason to managers, and be forgiving towards those who must toe the party line or else. Ben has already indicated how he treats managers who disagree: He fired Tampa Editor Ken Edelstein after Edelstein suggested that administration and production departments shoulder the same level of financial cutbacks as editorial and advertising. Ben felt that the bean counters were far more important than those who make and sell the beans.
It's also worth noting that Ben at one point was touting the media credentials of Atalaya, saying of one of its principals, Michael Bogdan: He's a “great guy who understands the alternative newspaper space plus is very strong on internet/telecom."
Atalaya's workout consultant for the Creative Loafing bankruptcy is a company called Bulkley Capital, which also has substantial media experience including advising the former owners of the Chi Reader and DC City Paper.
And in this age of media turmoil, there's no shortage of able managers available. I and many other former CL executives have no relationship with Atalaya. But many of us are united by one very important thing: We thought buying Chicago and DC was an insane and suicidal move, and we were right, as was the entire board of directors of CL, which resigned rather than be part of the deal.
Sorry. Ken Edelstein was, of course, Atlanta editor.
"But what, asks Eason, does Atalaya know about running newspapers?"
And what, pray tell, does Eason know about running newspapers????
Wotta putz.
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