Orioles owner loses in restructuring deal Memorex Telex accord leaves Eli Jacobs with little control over firm.


Memorex Telex, a product of two leveraged buyouts organized by Eli S. Jacobs, has reached a tentative deal with its bondholders that effectively strips Jacobs and other shareowners of any significant interest in the company.

Jacobs is the principal owner of the Baltimore Orioles.

The agreement was reached Tuesday and is to lead to a so-called prepackaged bankruptcy filing. The deal hands small damage to the banks, significant losses to senior bondholders and even larger losses to the junior holders, who financed the original leveraged buyout of Memorex from Unisys in 1986. Telex was bought in a 1988 buyout from public holders.

The bondholders agreed to accept a 95 percent stake in the company, with the rest to be split by the common and the preferred shareholders.

Most of the shares will probably end up with the preferred holders, leaving little for the common holders.

Chief among the holders of the common shares is Jacobs, who held about 35 percent of the stock.

The rest was split among management and some bondholders.

Jacobs may still get money out of the company. An agreement paying another company he controls a minimum of $700,000 a year for consulting services stays in effect, said David J. Faulkner, the company's vice chairman and chief financial officer. He said Jacobs had provided advice on "strategic directions" and other matters.

"One could say that his interest is being diluted. On the other hand, one could say the company he has an interest in is stronger," Faulkner said.

He said Jacobs' future role in the company he created is undecided, but it would not include significant ownership.

Jacobs was unavailable for comment.

Some observers have speculated that business troubles led Jacobs to earlier this year hire an investment banker to explore selling the Orioles. But Jacobs has said the bulk of his businesses are sound and finances played no role in his decision to consider selling the team.

Memorex Telex sells computer peripheral equipment, and has been hurt by a slowdown in that business that led to the announcement of layoffs yesterday and the decision to sell some operations last year.

"But there is a strong core business," Faulkner said. "We just have too much debt, too much interest expense."

He said the company's debt to vendors and suppliers will be unaffected.

The company also has relatively little in the way of physical assets, since it acts mainly as a distributor and service agent for products made by others.

In a prolonged bankruptcy fight, the value of the company could have withered, especially because it has extensive operations in Europe, where creditors might have been able to seize assets.

That seems to have spurred all concerned to negotiate, and to have persuaded the common shareholders not to try to hold out for a significant stake.

"This is a case where everybody decided that if we go to war, we are going to lose a ton of money," said David Ying, an executive vice president of Smith Barney, which advised the company. "By doing this deal, they have a chance of making a lot of money."

The restructuring deal was reached early Tuesday morning after all-night negotiations that ended around 5 a.m. with details still unresolved.

The final deal, which was reached by phone a few hours later, gave junior bondholders the right to buy more stock in the company at a later date. That right will be valuable only if the company does well under its new capital structure.

The negotiations, which began in May, were also pushed by a desire to announce the agreement at the same time that the NTC company reported a net loss of $270.7 million, on revenues of $1.9 billion, in the fiscal year ended March 31.

The restructuring provides that senior bondholders, who were owed $574 million plus six months of unpaid interest, will get new 10 percent bonds, due in 1998, at a rate of 80 cents for each dollar they had been owed. They will also get 35 percent of the stock.

The senior bonds, which had been trading below 50 cents on the dollar, were quoted around 60 cents late yesterday.

The senior bonds were sold to the public in 1989, and the money was used to repay bank loans.

The junior bondholders, who were owed $425 million, will get 60 percent of the stock but no bonds. The junior bonds were quoted yesterday at prices of 13 to 25 cents, reflecting expectations that different bonds will be treated differently.

The banks, which are still owed $244 million, are to receive lower interest rates over a longer period of time, and provide an additional working capital loan of $67.5 million.

The company's interest bill would be cut by $100 million a year under the deal.

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