Leveraged Buyouts

The column by Jack Valenti is the best I've read in many years. It's about time someone portrayed to the nation the true Jimmy Carter-Ronald Reagan legacy, mostly the latter, instead of the ridiculous fantasy reflected by the Madison Avenue boys! RICHARD SEELEY La Crescenta

Dell Inc.'s board was expected to vote late Monday night on an offer, led by founder Michael Dell, to take the company private for about $24 billion, people with knowledge of the matter said. The deal may be announced early Tuesday, said the people, who asked not to be identified because the process is private. The offer values Dell at $13.50 to $13.75 a share, two of the people said. Shares of the Round Rock, Texas, personal-computer maker fell 36 cents, or 2.6%, on Monday to close at $13.27, giving it a market value of about $23 billion.

The leveraged buyout of RJR Nabisco was a landmark in U.S. finance. The price tag of $25 billion, to be paid mostly in cash, made it by far the largest corporate takeover, a record that may last a long time. The attention the deal has attracted renews interest in three questions that have been raised by the LBO craze. Can our corporate system tolerate chief executives who self deal, maximizing their own profits rather than the profits of the shareholders they purportedly represent?

This month, a two-page letter from an angry Colorado investor arrived on Tribune Co.'s Bankruptcy Court docket. The investor, Mark Lies, was among thousands of Tribune shareholders who cashed out when the media conglomerate went private in 2007. And like those others, he stands to lose some of his winnings if junior creditors succeed in their legal bid to claw back more than $2.5 billion of the $8.2 billion in proceeds from Tribune's disastrous leveraged buyout. "What seems grossly unfair," Lies wrote to U.S. Bankruptcy Judge Kevin J. Carey, "is there doesn't seem to be any adult supervision looking out for the average investor like myself.

Federal Reserve Board Chairman Alan Greenspan said Saturday that he believes the number of leveraged buyouts of companies has started to subside, but a panel of business experts disagreed, contending that many more large companies would be takeover targets. Greenspan expressed his view at a closed-door meeting of the Business Council, a group of 65 top executives of the nation's biggest corporations assembled for their spring meeting here. The Fed chief refused to comment to reporters afterward on leveraged buyouts or on any other topic, especially the moderate 0.4% rise in the producer price index for April that sent the stock market soaring Friday.

The announcement Thursday that RJR Nabisco's managers may seek to take the giant consumer products company private in the nation's largest takeover quickly rekindled a controversy over the merits of the deals called leveraged buyouts, which have steadily increased over the last decade.

Labor leaders told a House subcommittee Tuesday that increased foreign investment in U.S. airlines and the heavily leveraged buyouts of air carriers threaten the safety of passengers and the soundness of the air industry. Leaders of two major unions representing more than 90,000 airline employees told the House subcommittee on aviation that leveraged buyouts could force airlines to cut costs, and thereby, corners.

Big-money corporate leveraged buyouts, which became the symbol of late-1980s greed on Wall Street, are making a dramatic comeback this year. The number of $1-billion-or-bigger LBO transactions--purchases of companies by outside investors, using mostly borrowed money--should reach at least 10 by year's end, worth a total of $14.1 billion, says Buyouts newsletter in New York. That would be the greatest number of billion-dollar deals in any one year since 1989.

Florida Steel Corp. said its top executives are considering making an offer to take the company private in a leveraged buyout that would be worth about $270 million or more. The company said it had been advised that senior managers were considering making an offer that would give shareholders cash and securities "with terms designed to have an aggregate value approximately in the mid-to-high forties per share." The company has about 6 million shares outstanding.

Research Cottrell Inc., a Somerville, N.J., pollution control, engineering and construction company, has agreed to a $293-million leveraged buyout by a group of investors that will include some members of management. The $44-a-share offer by R-C Acquisition Inc. was one of several bids for the company, a spokesman said. R-C Acquisition is made up of Odyssey Partners, the founders of Oppenheimer & Co., the investment banking firm Allen & Co. and First Chicago Venture Capital.

Ted Forstmann, a longtime Wall Street financier and philanthropist who was a major player during the wave of corporate takeovers in the 1980s, including the battle for RJR Nabisco in 1988, died Sunday. He was 71. The cause was brain cancer, according to a statement from sports marketing giant IMG, where Forstmann served as chairman and chief executive. He was the senior founding partner of the investment firm Forstmann Little & Co. Forstmann Little, which was founded in 1978, completed leveraged buyouts of companies including Dr. Pepper, Yankee Candle, Community Health Systems and the cable TV technology company General Instrument.

A group of former and current Los Angeles Times employees settled a federal lawsuit against GreatBanc Trust, the trustee for Tribune Co.'s employee stock ownership plan, for $32 million. The employees contended that the leveraged buyout that resulted in creation of the ownership plan violated federal pension law. The suit, filed in 2008, also included the newspaper's corporate parent, Tribune Co., and its chairman, Chicago-based real estate mogul Sam Zell, but they were subsequently dismissed from the litigation.

Lawyers and expert witnesses at the confirmation hearings in Tribune Co.'s bankruptcy case began this week to address the complex question of when the Chicago-based media company became insolvent and who should have known about it. But amid often-numbing testimony about discount rates and cash-flow tax values, strategies among the two groups of warring creditors in the case are becoming clearer as they each try to persuade U.S. Bankruptcy Judge...

The unsecured creditors committee in Tribune Co.'s bankruptcy case asked a Delaware judge Monday for the right to sue Chicago real estate magnate Sam Zell and other investors and lenders who participated in the company's ill-fated 2007 leveraged buyout. The motion was largely procedural, and the document said the request is not aimed at disrupting a court-ordered mediation in the case, which is scheduled for this month. Lawyers for the committee had signaled at a previous court hearing that they would probably file a new complaint and ask for permission to pursue it because U.S. bankruptcy law would require bringing litigation surrounding the buyout within two years of the company's filing for Chapter 11 protection.

The judge in Tribune Co.'s stalemated bankruptcy case appointed a mediator Wednesday, hoping an independent third party could finally broker peace between the Chicago-based media company and its pugnacious creditors. The move comes after a company-sponsored reorganization plan unraveled several weeks ago in the wake of an independent examiner's report that criticized elements of Tribune Co.'s disastrous 2007 leveraged buyout. Efforts to find a new compromise have collapsed amid escalating bickering over legal claims tied to the buyout led by Tribune Co. Chairman Sam Zell.

The board of directors of bankrupt Tribune Co. formed a special committee to oversee the media company's contentious reorganization process and to manage any legal claims arising from its 2007 leveraged buyout. Sources said the step is an effort to remove conflicts of interest from the debtor's decision-making process since some Tribune board members and officers may be the target of buyout-related claims. In a court filing Tuesday, the Chicago media company said four directors would sit on the committee.

The independent examiner charged with investigating claims of "fraudulent conveyance" in the Tribune Co. bankruptcy case asked Wednesday for a 15-day extension for filing his report. That would probably delay a set of confirmation hearings on the media company's reorganization plan scheduled for Aug. 16 in U.S. Bankruptcy Court in Delaware. "The examiner's request … is not unexpected," Tribune Co. said in a statement. "Although it may delay our confirmation hearing for a short period of time, we are supportive of the request in the interest of enabling the examiner to do a thorough and complete review."

Tribune Co. and its creditors agreed Monday to accept the appointment of an independent bankruptcy examiner in the Chapter 11 case, opening the door to further scrutiny of Tribune Chairman Sam Zell's controversial 2007 leveraged buyout of the Chicago-based media conglomerate. The examiner, who will be appointed by the U.S. Bankruptcy Court trustee in Delaware by the end of the week, will be free to inspect all aspects of the case, including the buyout and the fairness of a settlement reached this month between Tribune and some of its creditors.