The investment group headed by Pittsburgh sports attorney Chuck Greenberg and Hall of Fame pitcher and current president Nolan Ryan could receive as much as $10 million if they are not approved as owners in the sale of the Texas Rangers, according to court documents filed. The information from the filings was first reported in Monday’s edition of the SportsBusiness Journal.
As noted in the report, creditors of Hicks Sports Group, the holding company for the Rangers, would surely contest the breakup fee, while the Greenberg/Ryan group will contend that the amount covers the expenses tied to fighting the legal battle they are currently in the midst of -- costs no other bidders would need to absorb.
Tomorrow, U.S. Bankruptcy Judge D. Michael Lynn will hear arguments on whether a “pre-packaged plan” by the Greenberg/Ryan group might be accepted, or whether the bidding will open up and allow other potential owners such as Houston businessman Jim Crane, to engage in bidding for the club. The creditors have contended that Crane has a better offer on the table, while the Greenberg/Ryan group contends that based upon MLB approval, and bid price. In a separate filing, the Greenberg/Ryan group (Rangers Baseball Express) contends that “[Crane] will pay marginally more for the Texas Rangers franchise, such a bidder faces significant execution risk, including (1) negotiating an acceptable asset purchase agreement; (2) reaching agreement with any non-debtor that will contribute assets as part of the asset purchase agreement; (3) a potential uphill battle to obtain MLB consent (or litigation with MLB regarding its consent rights); and (4) potentially greater financing uncertainty than the Purchaser.”
The Brief in Opposition by the creditors, dated 6/11/10 shows:
On May 23, 2010, TRBP and the Greenberg Group terminated the January APA and immediately executed a new agreement (the “May APA”) that provides for materially worse terms for TRBP as compared to the January APA, including (1) a $10 million termination fee payable to the Greenberg Group if the transaction does not close (both agreements provide for only a $1.5 million deposit by the Greenberg Group if it cannot close); (2) a reduction in cash payable by the Greenberg Group; (3) a $30 million escrow for a one-year period (despite the Greenberg Group’s offer to reduce the escrow to $15 million for nine months in the April 2 proposal), as well as changes to make it easier for the Greenberg Group to claim against the escrow; and (4) substantially increased reimbursement for fees, including those incurred by BRE, which were not previously required.
The Brief also contends that the lease for Arlington Stadium was transferred improperly from Rangers Ballpark LLC to Texas Rangers Baseball Partners (the current ownership of the Rangers) “for no consideration.” The Brief adds that, “Such transfer was effectuated without an approval of the Collateral Agent, who was the only entity capable of granting such approval.”
The transaction from the Greenberg/Ryan group would keep Tom Hicks on as Chairman Emeritus holding a 1 percent minority stake in the Rangers. According to the filing, “Mr. Hicks would receive a one percent stake in the Texas Rangers, approximately $58 million, as well as ‘certain perquisites . . . customary to former owners . . . of professional sports teams’ including season tickets and parking passes, and the title of Chairman Emeritus for three years.”
An interesting point in the Brief outlines how much in initial payments the Greenberg/Ryan group would offer as part of the January 23, 2010 Asset Purchase Agreement (APA). While this figure has since changed over the course of the exclusive negotiating window with the group, it gives insight into how much cash would have been involved, if the APA had come to fruition without the legal snarlings that the Rangers are now in the midst of with the voluntary Chapter 11 bankruptcy proceedings.
The January APA paid the Lenders approximately $231 million cash at closing, with $30 million to be held in escrow (which might only become available to the First Lien Lenders more than a year after closing).
Along with the sale of the Rangers, a separate land transaction for approx. 154 acres of land surrounding the Ballpark is also in play with the Rangers sale. The sale price for the land was not made available to the public, but with the filing, details from the 1/23/10 APA shed some light on how much the Greenberg/Ryan group would be offering, as taken from the point of view of the Brief in Opposition by the Lenders:
Pursuant to the Land Sale Agreement, BRE agreed to sell its right, title and interest in certain real property surrounding the Ballpark at Arlington (the “BRE Property”). BRE stood to receive the following consideration in connection with the Land Sale Agreement: (i) $5,000,000 of cash, (ii) a $53,158,991.04 promissory note paying interest of 4.1% per annum, (iii) a 1% equity interest in Rangers Baseball Express, (iv) forgiveness of a $12,800,000 debt owed to Emerald Diamond, L.P. (“Emerald Diamond”), a guarantor under the Credit Agreements and (v) assumption of certain liabilities associated with or related to the BRE Property, and (vi) repayment of the Overdraft Protection Line of Credit.
Finally, for some time it was reported that the creditors saw a large gap that was preventing the deal from gaining full approval of the 40 creditors, with lead creditors Monarch Alternative Capital being the stumbling block. Reports had $270 million being offered while the creditors remained steadfast in saying they would accept no less than $300 million, a $30 million gap.
The Brief in Opposition adds that after the 1/23/10 APA was reached, the Greenberg/Ryan group continued making adjustments that would have gotten the gap to just $18 million.
On April 2, 2010, HSG and the Greenberg Group made an informal proposal (not reflected in any executable documents) regarding certain improvements to the January APA, which MLB calculated as providing $282 million of value to the Lenders. Although this was higher value to the Lenders, most of the improvements were economic concessions made by Hicks and his affiliates.
More news tomorrow as the hearing takes place. Expectation is that a ruling by the judge in which the process could be opened up to other bidders, or the "pre-packaged" plan could be approved. That ruling could take place late Tuesday, but most likely Weds. morning. If Lynn rules in favor of the Greenberg/Ryan group offer, the final approval of the "pre-packaged" plan by the group would occur at a seperate hearing on July 9th.
If the judge were to open the bidding up, it is expected to be a major legal challenge as to how sports leagues can select who can, or cannot, be owners, irrespective of bid price.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to Forbes SportsMoney blog. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
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