Earlier this year, Shearman & Sterling set up a client with a sweetheart of a deal. The firm introduced Mark Thomas to Sumner Redstone and the two hit it off swimmingly.
After the jump, the result and some curious BigLaw involvement.
To recap, Peter Lyons (Virginia BA ’77, Georgetown JD ’80) and Creighton Condon (Penn BA ’78, Columbia JD ’82) are M&A partners at Shearman who had discussions with executives at Redstone’s National Amusements about potential buyers of the Midway stake. Lyons and Thomas knew each other from work Shearman had done for Georgetown Partners, a Maryland-based private-equity firm where Thomas was a managing director and part owner between 1998 and late 2007.
Based on that introduction, Redstone sold his controlling stake in Midway Games to Thomas for $100,000 and assumption of $70 million in debt on the eve of bankruptcy.
The deal wasn’t without its problems, though, as creditors objected to the arrangement, concerned that Redstone was self-dealing (he denied it) and that it would decimate the company.
Early in June, Thomas and the company’s creditors agreed to cash him out for $5 million less amounts he’s been paid since the Chapter 11 filing. That settlement wipes out a secured claim for $30 million and a worthless unsecured $40 million claim comprising the assumed debt. That’s a 50x return in less than a year – all thanks to Shearman.
Not too shabby, maybe the former lawyer really does have that self-proclaimed $10 million net worth (it’s in the affidavit we linked to in the first article above).
And now the estate just might have some cash to pay creditors. Warner Bros. Entertainment Inc. put in a $30 million stalking horse bid earlier this year. No other bidders emerged, and the offer has been approved by U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware. Warner Bros. was also a creditor, to the tune of just under $8 million for licensing deals on Happy Feet and Ant Bully, among other properties.
Happy ending for Shearman and Thomas, but Redstone, his affiliated companies, and the Midway board will still have to deal with the creditor suits for the sale and the loan. The creditors committee, represented by Milbank Tweed, said the sale was a fraudulent transaction set up to create losses for National Amusements to use to offset gains. Blank Rome represents Midway as the debtor in the bankruptcy.
That’s where things get really interesting.
Remember how Shearman introduced Thomas to Redstone? Redstone vehemently denied any other relationship with Thomas, which everyone found fishy because it was obviously a sweet deal.
Well, not only is Shearman Redstone’s long-time go-to firm, they’re representing him in that suit. So they made the introduction to the buyer, represented the seller in the deal, and now represent the seller as the defendant in a suit claiming the deal was fraudulent.
Meanwhile, the board has its own issues with its counsel. A significant debt, one that other creditors claim crippled the company and forced it into bankruptcy, was from money Redstone lent the company in response to a request from his daughter, a member of the board, for the cash. Dewey & LeBoeuf represented the board on that deal, and now represents the board in the creditor suits.
Arguably, Shearman and Dewey are in the best position to represent their clients as they’re the firms most familiar with the deals. But couldn’t they (Dewey in particular it seems) have issues defending both their clients and the legal advice they gave on the deals? Wouldn’t the board want to at least consider the defense that it acted reasonably and in good faith on the advice of reputable counsel, and that the counsel really screwed things up? Is Dewey really the best firm to count on to make that defense?
Obviously, they should settle things old-school. Shang Tsung vs Raiden.
Related posts:
{ 2 trackbacks }