Walker tries to stay on his feet
By Richard Byrne Reilly
Redherring.com, January 29, 2001
Facing the threat of bankruptcy, Jay Walker, founder of Priceline.com (Nasdaq: PCLN), is trying to sell some of the assets of his troubled incubator, Walker Digital, to pay off millions of dollars in debt, Red Herring has learned.
That's the grim news spelled out in a Walker Digital letter obtained by Red Herring. The letter, sent to key former employees on January 12, suggests that repayment of debts to those employees (who hold employment contracts) and vendor creditors is contingent on the sale of certain assets of six-year-old Walker Digital. The proceeds from such a sale "would provide Walker Digital the cash it needs to settle creditor claims," the letter states in part.
The letter encourages former Walker Digital employees with employment contracts to enter into a settlement agreement with the company. But it ominously notes that such an agreement could be voided under two scenarios. One: if the company is unable to raise enough money from the sale of assets to pay settlements with creditors. Two: if Walker Digital "voluntarily or non-voluntarily enters into bankruptcy proceedings."
MUM'S THE WORD
Attorney Michael Nugent, author of the letter, could not be reached for comment. Mr. Walker declined to respond to repeated requests for comment, as did Walker Digital spokesman Kevin Goldman. Back in November, Mr. Goldman dismissed talk of bankruptcy. "Walker Digital's going to be around for a long, long time," he told Red Herring at that time.
The shortage of cash is unusual, given that Walker Digital and its holding company have sold shares of Priceline.com stock totaling $91 million, according to First Call/Thomson Financial. In addition to Priceline.com stock, Walker Digital's assets include two companies: RetailDNA, a discount pricing engine for the fast food and retail industries, and another enterprise, which Mr. Goldman declined to name.
After failing to raise $40 million from his primary investor, General Atlantic Partners, Mr. Walker in November abruptly fired 106 of his 120 employees without a day's severance. In doing so, he incurred the wrath of Connecticut's attorney general, Richard Blumenthal. The attorney general is suing Mr. Walker for $1 million for violating employment laws during the mass firings.
Mr. Walker was once a high-profile figure in the new economy. He made the fastest debut on Forbes magazine's billionaire's list in 1999 with Priceline.com stock holdings worth $10.2 billion. He even made it onto the magazine's cover.
SHADES PULLED DOWN
These days he's keeping a decidedly low profile. After Mr. Blumenthal launched an investigation into Walker Digital's mass layoff, Mr. Walker stepped down from Priceline.com's board, where he was vice chairman. And Walker Digital's Web site, which once featured a big photo of Mr. Walker on the cover of Forbes, no longer displays the graphic, which hailed Mr. Walker as "the Thomas Edison of the Internet."
Walker Digital's Web site boasts that the company has more than 70 patents and another 400 pending. Presumably, those are the assets that the company is trying to sell. The letter states that an unnamed "third party has begun serious due diligence" to buy certain assets.
Walker Digital is making some headway in getting creditors to settle claims for reduced amounts. Chris Rovtar, a former Walker Digital vice president, says he has agreed to take 85 cents on the dollar for the $250,000 Walker Digital is contractually obligated to pay him.
Mr. Rovtar's short history at Walker Digital is a sad one. He was hired by Mr. Walker on November 6 to run the company's entertainment division. Mr. Rovtar had previously started and sold CollegeBroadcast, a college cable TV network, for $5 million in stock. Lured by the affectations of Mr. Walker's vision and generous salary, Mr. Rovtar sold his home in Los Angeles and bought one in Connecticut, where Walker Digital is based. Less than 20 days after he was hired, he was shown the door with no severance. Jobless and saddled by a big mortgage, he says: "Now I'm waiting for somebody to throw me a parachute. I'm hoping that it will be Jay Walker himself, because he owes me a lot of money."
Mr. Rovtar is among 23 employees with contract-related claims against Walker Digital. The letter notes that the company has reached tentative settlement agreements with 20 of those employees. It adds that Walker Digital is pursuing similar settlement deals with creditors and that it has reached tentative agreements with "5 of the top 30 vendor creditors."
INFLATE THE LIFE RAFT, PLEASE
The most oft-asked question among former Walker Digital employees is why Mr. Walker himself isn't dipping into his personal cash reserves to shore up his incubator and pay off his debts. After all, he was once listed as one of America's richest people, and he's building a 30,000 square foot estate in Ridgefield, Connecticut, estimated by local press reports to cost $6 million.
According to First Call/Thomson Financial, Mr. Walker has made $11.3 million through the sale of 2.3 million shares of Priceline.com stock in six transactions. He still holds 47.8 million Priceline.com shares (as of November 2000), giving him a paper worth of $124 million. Priceline.com's shares closed at $2.60 on Thursday, down from a 52-week high of $104.25.
Mr. Walker is also listed as the beneficial owner of Priceline.com stock held by Walker Digital LLC and Walker Digital Corporation, which own 4.3 million shares (as of December 2000) and 6.3 million shares (as of September 2000), respectively. (Walker Digital LLC is controlled by Walker Digital Corporation, of which Mr. Walker is founder, chairman, and controlling stockholder, according to an SEC filing.)
Walker Digital LLC has made $39.7 million through 14 sales of Priceline.com stock in May and December 2000. It has sold a total of 2.97 million shares, First Call/Thomson Financial records show.
Walker Digital Corporation has made $51.3 million on seven occasions, courtesy of Priceline.com. One transaction was completed in August 1999; the other six were in May 2000. It has sold a total of 991,000 shares, according to First Call/Thomson Financial.
Mr. Walker is being watched closely by Mr. Blumenthal, a career politician who has earned a reputation as a tough prosecutor. "There's been speculation in the press that the layoffs are a sign of Chapter 11," the attorney general says. "From a legal standpoint, he's entitled to offer whatever defenses he chooses. Morally, of course, it's another question."
Even if he files for bankruptcy, Mr. Walker may very well end up running another startup. A company insider contends that when and if Mr. Walker extricates himself from his current troubles, General Atlantic is waiting in the wings with more venture capital to fund Mr. Walker's next endeavor. After all, Mr. Walker made quite a bit of money for the VC firm with Priceline.com. Mark Dziagla, a general partner at General Atlantic who sits on Walker Digital's board, hung up the phone when asked to comment. |
