Mark Cuban's role in Texas Rangers auction not clear
Mavericks owner may be a bidder and creditor for team; News Corp owner Rupert Murdoch also interested
02:34 AM CDT on Saturday, July 31, 2010
By EVAN GRANT / The Dallas Morning News
egrant@dallasnews.com
When the Rangers finally move to auction next week, as ordered Friday by U.S. Bankruptcy Judge D. Michael Lynn, it appears Mavericks owner Mark Cuban will leave with something one way or another.
It's just not certain whether it will be controlling interest in the club or a hefty profit. Two sources said Friday that Cuban has been buying and trading for debt notes on the Rangers and Hicks Sports Group, which would make him both a bidder and a creditor. Cuban, however, did not respond to an e-mail request for confirmation about his acquisition of the debt notes.
Lynn ruled the auction for the Rangers will go forward Wednesday as scheduled, and it could include a new bidder – Rupert Murdoch's News Corp, according to a source who spoke on the condition of anonymity.
News Corp. wants to bid on the Rangers to ensure continued TV rights for its Fox Sports unit, a source close to the negotiations said late Friday.
The source on the News Corp. bid said he had no details other than that necessary documentation was being prepared to win approval to participate from Major League Baseball. The firm must get such a go-ahead before submitting a bid by 8 p.m. Tuesday.
Lynn said his preference was to approve a "substantially enhanced" bid that would enable Pittsburgh attorney Chuck Greenberg and team president Nolan Ryan to purchase the franchise from embattled owner Tom Hicks. However, his ruling ultimately was based on satisfying the lenders "because it is their money," and he said he was assured by lawyers for Cuban and Houston businessman Jim Crane that their clients have had enough time to conduct due diligence and arrange financing for a bid.
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Mark Cuban
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The attorneys said their clients are ready, either separately or in tandem, to bid for the Rangers on Wednesday. Cuban, in a brief e-mail, did acknowledge a willingness to work with Crane.
The latest twist in the bankruptcy saga occurred Thursday when William K. Snyder, the chief restructuring officer appointed by the court, negotiated an enhanced bid with Greenberg-Ryan. It was announced in federal bankruptcy court in Fort Worth on Friday morning.
That sent tremors through the courtroom.
Although Lynn called it "a fair and sincere" bid in his afternoon ruling, Clifton Jessup, Cuban's lawyer, called the new bid an "October surprise." Jessup said even if the auction went forward, it might make the process more difficult for Cuban and any other bidders and "chill the bid."
In question now, however, is whether Cuban's motivation is to bid for the team or to bid up the selling price. Either way, he stands to gain.
According to a person familiar with the distressed investing business who spoke on condition of anonymity, Cuban's acquisition of distressed debt is neither unsavory nor uncommon in these types of bankruptcy proceedings.
A potential bidder who acquires debt owed by a distressed asset often buys up less secure "second liens." Those creditors only receive proceeds once the "first lien" holders are satisfied in full.
The acquisition of such debt, however, would allow Cuban more control of the bidding process. He could bid up the price, knowing that if he gets the club, he would also receive money from the sale, which would lower what he actually ends up paying. And if somebody else tops his bid, he would be more likely to receive a healthier percentage of the sale.
Cuban could also increase his take on the deal by working with Monarch Alternative Capital, a New York-based private investment firm that specializes in lending to distressed firms and holds some of the debt. Acting essentially as Monarch's agent, Cuban could bid up the price and receive a fee or a portion of the profits when the sale is completed.
In addition to Cuban's lawyer, representatives for Monarch immediately objected to the Greenberg-Ryan enhanced bid, negotiated by Snyder, saying they wanted an open bid for the team.
The enhanced bid
Although details of the new Greenberg-Ryan bid are not public, it's believed to have dropped side deals from the first bid. That apparently means Hicks would not receive $70 million he had negotiated for parking lots and a center field office building at Rangers Ballpark in Arlington.
It is also believed the new agreement raised the cash amount by at least $40 million over the previous bid, to $350 million.
Lynn ruled that bidding would revert to the opening – or "stalking horse" – bid made by Greenberg-Ryan that totaled $510 million. It consists of $306.7 million for the team and the balance to satisfy unsecured creditors, who include vendors and players owed money such as Alex Rodriguez.
The judge said bids must start at $15 million above the "stalking horse" bid.
However, he cautioned the lenders that by pressing for an auction, they are "rolling the dice" and may have to settle for less than they might have gotten.
Lenders' stance
Andrew Leblanc, a lawyer representing the lenders, said that was acceptable.
"If there are no problems with the process, you won't hear from us," he said. "If the bidding doesn't get to the number we want, you won't hear from us."
Leblanc said there is one stipulation, however, telling the judge the lenders reserve the right to object to the process if it is flawed – specifically, if there are no bids Wednesday besides Greenberg-Ryan.
In the afternoon session, lawyers for Crane and Cuban told the judge that would not be the case.
"[Cuban] is immersed in this and wants to go forward," Jessup said.
The only stumbling block, he said, would be if due diligence uncovered a business aspect that Cuban couldn't live with.
Cuban was unsuccessful in trying to buy the Chicago Cubs three years ago. And according to earlier reports, Crane might have difficulty being confirmed by Major League Baseball owners after his failed attempts to purchase the Cubs and Houston Astros. Both, however, have been approved to bid for the Rangers.
Lenders, who are owed $525 million by Hicks Sports Group, have objected to the Wednesday auction date, arguing it does not give bidders enough time. But Lynn said the auction needs to proceed because the Greenberg-Ryan group will lose its financing on Aug. 12, "and I am not going to sink their bid."
Special contributors Pete Alfano and Barry Shlachter contributed to this report.
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