ZENITH CASE SHOULD NOT GET A FAST-FORWARD
David Greising/Chicago Tribune/September 29, 1999
There was not much cause to give thanks at Zenith Electronics Corp. two Thanksgivings ago.That weekend was crisis time.
Glenview-based Zenith faced a $25 million bond payment, and did not have the cash.With no obvious escape, the company's majority shareholder, Korean giant LG Electronics, called the investment banking firm Peter J. Solomon Co. and asked for help.
That call, and the events that followed over the next four days, are the reason that a bankruptcy judge here considering Zenith's fate should throw out the company's controversial request for a prepackaged bankruptcy, and force Zenith to go through a normal Chapter 11 process.
There are too many questions about Zenith's conduct--and, more to the point, about LG's conduct--to allow this bankruptcy to fly through without contest. There's too much at stake to go any other way.
In its bankruptcy filing, Zenith proposes to turn over 100 percent control to Seoul-based LG, in exchange for LG forgiving $200 million in claims against Zenith. All other shareholders would see the value of their investment plummet to zero.
The arguments about Zenith's future, about LG's motives, and about whether Zenith's shareholders deserve any value cannot be settled in a prepackaged bankruptcy hearing.
Prepackaged bankruptcies are designed for companies that can enter and exit bankruptcy proceedings without controversy. Two days of hearings in a bankruptcy court here established this, if nothing else: Zenith's bankruptcy proceeding is as fraught with controversy as any in recent memory.
The main controversy surrounds Zenith's hiring of Solomon. The underlying argument is the claim that LG Electronics shrewdly maneuvered Zenith into a prepackaged bankruptcy in a scheme to get control of Zenith and its highly valuable patents for high-definition television, a market expected to explode to $200 billion in sales by 2010.
The matter was not completely settled in two days of court hearings. There is enough debate in the air that the judge should let the Zenith bankruptcy be heard in a typical Chapter 11 proceeding, even though Zenith faces an Oct. 31 deadline for its next debt payment. Much of the debate about Solomon's conduct and LG's motives revolves around events that were set in motion Thanksgiving weekend of 1997.
The cash shortfall on the $25 million bond payment was a strong signal to LG that Zenith's financial picture would not improve. Unsettled, LG called in Solomon and really talked turkey.
In four days of meetings that sometimes included LG executive John Koo--but no one from Zenith--LG laid out its Zenith agenda for Solomon. "The main concern was that if we went to (an immediate) bankruptcy, then Zenith would spiral down into an uncontrolled process," LG's Ian Woods recalled.
For the Solomon executives, the upshot must have been obvious: Whatever happened, Zenith's majority shareholder wanted to control Zenith's fate.
Only after those meetings did LG introduce Solomon to Zenith's board. And only then did Zenith hire Solomon--without interviewing any other candidates.
No wonder the investors are screeching like turkeys that just got an invitation to Thanksgiving dinner.
Zenith's board showed a strange willingness to trust Solomon. It accepted his statement that he had no conflict of interest, even though LG brought Solomon to Zenith. And
the board accepted Solomon's claim that its now-controversial financial statements did not require an independent "fairness opinion."
There are more than just appearances that are out of line here.
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This is only a very small part of the LGE/Zenith story of October-December of 1997. Stay tuned.... |
