Tuesday, August 25, 2009
Media / News Bites / News Ben Eason on what happens next
Posted by Michael Miner on Tue, Aug 25, 2009 at 5:26 PM
It wasn't widely known (meaning I'm not the only one who didn't know it), but Ben Eason, outgoing CEO of Creative Loafing Inc., was abandoned weeks ago by his bidding partner in the auction for control of the company.
When Eason borrowed $40 million and bought the Reader and Washington City Paper two years ago, BIA Digital Partners of Virginia was the mezzanine lender, giving Eason $10 million. But when CLI filed for bankruptcy last year, BIA stood an even smaller chance of getting its money back than Atalaya Capital Management, the primary lender owed $30 million. When bankruptcy judge Caryl Delano decided the company should be put up for auction, BIA allied with the Eason family and the CLI corporate management to salvage what it could. But before the auction actually took place, BIA switched sides. It wasn't formally a part of Tuesday's winning Atalaya bid; but Atalaya's managing partner, Michael Bogdan, told me BIA has the option of buying a minority share of CLI and has the "full intention of doing that."
Eason shrugs off the loss of BIA. "No, no, it didn't compromise us," he told me this afternoon. "We had covered it. We put a strong bid up. I still think we had the highest and best bid." The history of CLI goes back to 1972, when Eason's parents launched the Creative Loafing weekly in Atlanta. Easons's bid, he has always maintained, stood for experience, continuity, devotion to journalism, and commitment to the cities CLI's six weeklies serve. Atalaya's bid was simply bigger. Which it was bound to be, Eason reasons; because Atalaya could buy CLI with money CLI owed Atalaya, it was simply shifting money from one pocket to another. "Basically," says Eason, Tuesday's result "says anybody who does an equity auction where the creditor is bidding, on your face you'll lose."
Atalaya made the "stalking horse" bid of $2 million, setting a floor for the actual auction. Eason countered with a bid of $2.3 million, filed last Friday. Tuesday, in court, Atalaya raised its bid to $5 million—and that was that. "They came out and threw 5 down," said Eason. "We frankly thought they'd bid 10 or 20." Could you have matched 5? I asked him. "There was no point," Eason said; Atalaya would have simply raised the stakes. "The fact is, when we went in this morning we couldn't have won."
I asked him if he had something reflective to say for publication. "Life goes on," he said.
Sorry you bought us? I asked. No, he said.
"The Reader and City Paper deal was a fine deal," he told me. "That was not the deal that did us in. The deal that did us in was having any degree of leverage, and then having Craigslist and this economy. I had a reasonable-to-high degree of leverage in the City Paper-Reader deal and any leverage at all would have killed us.
"The fact is," he went on, "the Reader's profitable because of the measures that we've taken. I had to do the hard things the old owners maybe knew in their heart of hearts they needed to do but just couldn't do. Creative Loafing with the Reader and City Paper is far stronger than Creative Loafing alone. Having all these entities together is why Atalaya and BIA are interested in putting their money in. It's not the deal that is the problem. The question is, why didn't you sell in 2004 or 2005 or 2006? That's really the question."
In other words, why didn't Eason, a man of acumen, see the wind building and the waves churning and get out before the perfect storm arrived, threatening to sink all of print journalism's boats?
"And the answer is, 'I'm an entrepreneur, I don't sell, I build,'" said Eason. "Maybe I'd have sat on the beach a little bit longer and had a little more of whatever. But that's not who I am."
Right after court adjourned Eason told friends and reporters that he plans to get right back into the water, launching an online news site in Tampa. He was a little vague talking to me. "I was saying I've started three newspapers in my life. That's what I do—start them and build them," Eason said. But, he conceded, "I have to say I haven't given a lot of thought to what 'next' is.
"I and the family are fine. We took our hit already when we filed Chapter 11. We took our hit when the media economy went down. That chapter's over. I'm no poorer or richer today than I was before the ruling."
He's even got money coming, he pointed out. Earlier this year he and other managers began deferring a portion of their salaries to cut costs. That money went onto the books as corporate debt that will now be repaid out of the sale proceeds. "I get about 15 grand back," Eason said. "That's not a stick in the eye."
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"The Reader and City Paper deal was a fine deal," he told me. "That was not the deal that did us in. The deal that did us in was having any degree of leverage . . . I had a reasonable-to-high degree of leverage in the City Paper-Reader deal."
Am I missing something, or is he saying the Reader deal didn't do CL in, except for the part where the Reader deal did CL in?
I think you're thinking about it too hard.
No focus on the facts he got 15K when let go?? What a nice boost to skip out with. Meanwhile what is the Reader doing what's the plan.
Actually, I take that back, Philip - I think get it. It's much, much more interesting than I thought:
"'The Reader and City Paper deal was a fine deal,' he told me. 'That was not the deal that did us in. The deal that did us in was having any degree of leverage, and then having Craigslist and this economy. I had a reasonable-to-high degree of leverage in the City Paper-Reader deal and any leverage at all would have killed us.'"
"'The fact is,' he went on, 'the Reader's profitable because of the measures that we've taken. I had to do the hard things the old owners maybe knew in their heart of hearts they needed to do but just couldn't do. Creative Loafing with the Reader and City Paper is far stronger than Creative Loafing alone. Having all these entities together is why Atalaya and BIA are interested in putting their money in. It's not the deal that is the problem.'"
Parsing that:
1. CL was already leveraged, as my understanding goes, since some of the new debt retired old debt.
2. Adding more leverage didn't kill CL if the perfect storm of existing leverage + the economic downturn + the flight of advertising from print would have killed it anyway.
3. The deal was smart because it made CL + the Reader/WCP a stronger asset; if the deal hadn't been struck, the assets would be worth less, or worthless, and thus in the current macro- and microeconomic situation buyers would have less interest in the properties as separate entities.
I think what I'm seeing is the seed of a tragic hero narrative:
1. Eason packages a smart deal for the benefit of all involved except for, as we shall see, himself
2. He makes the hard decisions that would not have been made had CL not taken charge of the feckless Reader
3. He is felled by Fate. Which explains this:
"'The question is, why didn't you sell in 2004 or 2005 or 2006? That's really the question.'
"In other words, why didn't Eason, a man of acumen, see the wind building and the waves churning and get out before the perfect storm arrived, threatening to sink all of print journalism's boats?
"'And the answer is, "I'm an entrepreneur, I don't sell, I build," said Eason. 'Maybe I'd have sat on the beach a little bit longer and had a little more of whatever. But that's not who I am.'"
Right? Seriously! The tragic hero is inevitably doomed because of his tragic flaw. Ben Eason's tragic flaw is that he builds even when it would personally benefit him to sell. He's sort of like Aeneas - the fallout is the inevitable result of an inevitable mission.
This is all academic, of course, but it's not like I'm using my education for much else.
--whet
What goes around really does come around. You deserve all the torment of losing
the paper. You have done so many shady things, it was about time.
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