High-priced and highly publicized divorces have for years been part and parcel of being a member of the financial elite. Most of the time, they involve the division of husband and wife.
But not always.
Sometimes, big-league business moguls engage in big-buck breakups that would make Ivana and The Donald blanch.
One such breakup is currently playing itself out on the Westside, as media titans Haim Saban and Rupert Murdoch squabble over dissolution of their partnership in Fox Family Worldwide Inc.
Even by mogul standards, this multibillion-dollar breakup is a whopper.
Saban and Murdoch each own 49.5 percent of Fox Family Worldwide (investment house Allen & Co. owns the remaining 1 percent). The company’s assets include the Fox Family Channel, with 80 million-plus viewers. The relationship began in 1997, when Saban Entertainment and News Corp. joined to buy the Family Channel and its parent company, International Family Entertainment Inc., from Rev. Pat Robertson for $1.7 billion.
Unable to attract a growing number of youths and families and therefore unable to improve the network’s overall performance Saban and Murdoch have not exactly been walking hand in hand, in a business sense. The relationship has been especially strained since last December, when Saban exercised an option that requires News Corp. to buy him out.
That move has been followed by ongoing disagreements as to the value of the company, with Saban apparently claiming it to be worth in the neighborhood of $6 billion, minus about $2 billion in debt, and Murdoch reportedly considering its value at something closer to $4 billion.
Sound familiar?
It should. Similar scenarios have unfolded plenty of times in the past. Among the more memorable ones was the acrimonious split between longtime friends and Walt Disney Co. kingpins Jeffrey Katzenberg and Michael Eisner, which eventually resulted in a hard-fought $250 million damage settlement in Katzenberg’s favor.
Presuming Saban and Murdoch would rather avoid a similar nasty, and public, court case. How can a consensus be reached?
According to Alison Ressler, a partner in Los Angeles office of international law firm Sullivan & Cromwell, much of it may depend on the contractual “mechanisms” put in place at the start of the deal.
“I don’t know how their contracts are drawn, how vague they are,” Ressler said, “but normally, there are things written into contracts to address such issues.”
Ressler suggests some common strategies that may be employed by Murdoch and Saban in order to arrive at an acceptable figure:
Hire an investment bank or some other kind of financial counselor to do an evaluation in order to set parameters of what “fair value” would be. This can help bridge a gap when each side is far apart on a price.
– Each side would agree to determine what it believes is a correct price and to submit that figure to an arbitrator. The arbitrator would hear both sides of the argument and then decide on what he or she thinks is a fair price. Whichever side is closest to the arbitrator’s price is the winner. This is called “baseball” arbitration due to its similarity to the process used in resolving player salary disputes in Major League Baseball.
– Reach an agreement in which Murdoch makes an offer to buy out Saban, and if Saban doesn’t think it’s high enough, he can turn around and buy out Murdoch for the same price.
“Let’s say (Murdoch) is saying to Saban that (Fox Family Worldwide) is worth $3 billion, and he says it’s worth $5 billion,” Ressler said. “Under this kind of agreement, (Saban) could buy it himself from Murdoch for $3 billion and try to sell it for $5 billion. It’s a way to keep both parties honest.”
– Agree to put Fox Worldwide up for sale to a third party, and let the market decide its value, splitting any resulting profit.
In fact, Murdoch and Saban are reportedly doing just that shopping Fox Family Worldwide to such entities as Viacom Inc. and USA Networks Inc. AOL Time Warner Inc. and Disney also have been mentioned as potential bidders.
Projecting profits
Economist Roy Weinstein said a key component to an acquisition would be determining the likelihood of future income growth.
“It’s hard to predict the future, but you can get some indication of it by looking at its past and current income stream, focusing on profits,” said Weinstein, managing director of the Los Angeles-based consulting firm Micronomics and an expert witness for the Oakland Raiders in its breach of contract lawsuit against the National Football League.
“It’s not rocket science in theory,” he said. “It’s common sense backed up by a lot of fairly involved research to decide if there are prospects for improvement.”
Attorney Browne Greene, a partner in the firm of Greene, Broillet, Taylor, Wheeler & Panish, said that putting together a 12-person focus group could go a long way toward arriving at a “fair” price.
“You hire a firm to put together a sample jury of objective people to listen to the strengths and weaknesses of a case,” said Greene, a veteran of several heavily publicized corporate litigation cases. “Both sides come in and make their pitch, and the focus group decides who has the best case. It only costs a few thousand dollars, and it’s very, very realistic.”
Greene said the chances of Murdoch and Saban taking their dispute to court are virtually nil.
“There is too much to be made and too much to be lost on both sides. This will get settled out of court, where both parties feel they have more control.”
