Cosmic Cocktail in 2 weeks: Get your ticket today before they sell out.

Owner of Orioles acknowledges financial difficulties In a July letter to creditors, Jacobs halts interest payments, requests time

THE BALTIMORE SUN

Orioles owner Eli S. Jacobs, who for years has cultivated a public image of financial invincibility, has privately conceded he has money troubles.

In a July 20 letter to some lenders, the New York financier said that his investments weren't generating enough money to meet all his obligations. He needed time, he said, to sell assets and restructure his debt. Meanwhile, he would stop making interest payments on some loans, according to the letter.

His announcement came after mounting pressure from bankers, some of whom have taken Mr. Jacobs to court.

Over the past six months, three banks -- Mercantile-Safe Deposit and Trust of Baltimore and New York's Berkshire Bank and Manufacturers and Traders Trust -- have sued Mr. Jacobs to recover $27 million in unpaid loans.

Including a lawsuit filed last year by some private investors, Mr. Jacobs is accused of defaulting on a total of $31 million in loans and personal guarantees.

The string of lawsuits and Mr. Jacobs' announcement to his bankers provide a rare look into an empire once estimated by associates to have a worth exceeding $500 million. Several of Mr. Jacobs' most prominent investments have soured in the past two years, and he told his bankers that a number of his holdings have been "stunted" by the recession. But, because his business is shrouded in mystery -- many of his companies are not subject to public disclosure -- it is difficult to establish the extent of his problems.

Mr. Jacobs said in court documents filed last month that his assets "greatly exceed" his liabilities and that he is "in the process of selling substantial assets."

He declined to be interviewed for this article. But through a New York-based spokesman, Mr. Jacobs said last week, "The restructuring process is proceeding on a constructive course, exactly on schedule."

That process could quietly move Mr. Jacobs' current difficulties out of public view, which clearly would be the preference of the secretive investor.

Baseball team owners tend to have high public profiles, but Mr. Jacobs has shunned like a virus all but the most tightly controlled and favorable publicity.

For Baltimoreans, the disputes over Mr. Jacobs' complex finances raise questions about the Orioles, one of the city's chief sources of municipal pride. More than a year ago, Mr. Jacobs said he was considering offers to sell the team. Now, there are some tantalizing hints that a deal may be near.

The revelations about Mr. Jacobs'cash-flow problems proved especially bitter for Mercantile, which has been countersued by Mr. Jacobs. Just four weeks before his July announcement that he couldn't make interest payments, the bank had given him a $21.3 million unsecured loan to restructure his finances. (An unsecured loan means no collateral is required.)

It was merely the latest show of support by the bank, which had backed Mr. Jacobs from the moment he emerged as a buyer of the Orioles in December 1988.

As soon as he learned of Mr. Jacob's interest, H. Furlong $H Baldwin, the chairman of Mercantile Bankshares, the bank's holding company, began an aggressive courtship.

Within days of the sale announcement, the banker helped set up a get-acquainted lunch with Gov. William Donald Schaefer and a breakfast with key legislators. While others were put off by the aloof manner of the Wall Street financier, Mr. Baldwin quickly became his closest contact in the Baltimore business world, according to corporate leaders.

Mercantile got an important new customer and Mr. Jacobs got a new source of money.

Soon after Mr. Jacobs assumed control of the Orioles, Mr. Baldwin joined the team's board of directors. The banker later offered Mr. Jacobs a seat on the bank's board, according to statements filed in court by Mr. Jacobs. Though he declined the position, Mr. Jacobs did follow Mr. Baldwin onto the boards of the Baltimore Symphony Orchestra and the Johns Hopkins University, the most prestigious in town.

And when Camden Yards opened this year, Mr. Baldwin's bank had a skybox adjacent to Mr. Jacobs' own suite, where a roster of famous guests relax in leather furniture, shielded from other fans by privacy walls.

"I think he [Mr. Baldwin] was thought to be by all of us as the closest person to Mr. Jacobs in the business community. . . . So to see them suing each other was surprising," says Mathias J. DeVito, chairman of the Columbia-based Rouse Co.

People who know both men describe them as a perfect match and yet the oddest of couples: competitive in business, they are driven by their work.

Supportive of Republican causes, they know the value of Democratic contacts. Ivy Leaguers, they amassed wealth and success and clearly revel in the influence that buys, according to acquaintances.

The loans

But where Mr. Baldwin moves deftly through circles of power, speaking his mind and openly courting influential people, Mr. Jacobs is stiff in public.

Acquaintances say he is often awkward in social settings, whether it's a small gathering or a tour of Memorial Stadium by the Queen of England.

Mr. Jacobs, a 54-year-old divorced father of a teen-age girl, is rarely seen in Baltimore outside of Orioles-connected events. His social life here mostly consists of entertaining in his ballpark skybox, where the guests this season have included President Bush, Secretary of Defense Dick Cheney and other Washington insiders.

"They are not like each other at all," says Governor Schaefer. "With Mr. Jacobs, he is a very nice man. But you've got to find something he wants to talk about. He doesn't go for a lot of small talk."

For Mr. Baldwin, a 60-year-old, ex-Marine, the hard-charging effort to land Mr. Jacobs' business was unsurprising. He was similarly forceful in courting the business of another New York investor, Robert Tisch, when he talked about buying a football team for Baltimore, according to an associate familiar with that effort.

Mercantile, founded in 1864 and chaired since 1976 by Mr. Baldwin, has an enviable reputation as one of the nation's top mid-size banks. It has built a lucrative franchise as a "relationship bank" that develops strong bonds with large borrowers.

"This is a bank that has actively courted business among a well- heeled clientele. . . . [Mr. Jacobs is] exactly the type of customer that Mercantile pursues," says John Heffern, a bank analyst and vice president with Alex. Brown & Sons in Baltimore.

Mr. Baldwin's initiative paid off handsomely: Mercantile put up .. $47.5 million of the Orioles' $70 million purchase price, a loan secured by the team, according to documents filed with the state Department of Assessments and Taxation. That loan is not involved in the current lawsuit.

Mercantile also provided Mr. Jacobs with a $2 million, 20-year mortgage to purchase his $2.25 million Owings Mills house in 1990, according to records.

And this past June 11 Mercantile gave Mr. Jacobs $21.3 million in return for a promissory note. Among its clauses: a provision, common in such unsecured loans, that allowed the bank to demand all its money back if he ever fell behind in his monthly payments.

Relations between Mr. Jacobs and the bank apparently faltered shortly thereafter.

None of the parties involved will discuss the details, but documents filed in court provide a glimpse of the dispute.

The dispute

Last July 14, Mr. Jacobs made his first monthly payment on the Mercantile loan -- four days late. Two days later, Mr. Baldwin chartered a plane and flew to the Teterboro Airport in New Jersey to meet with Mr. Jacobs.

Mr. Baldwin has not provided his version of the meeting, but Mr. Jacobs, in court documents, says he told the banker that he would meet with his lenders in a few days to discuss a comprehensive restructuring of his debts. Mr. Baldwin, in turn, called a top Mercantile official, instructing him to "to actively encourage other lenders" to support Mr. Jacob's refinancing plans at a meeting scheduled for July 20, Mr. Jacobs says in court documents.

On that date, Mr. Jacobs acknowledged to the bankers who had made unsecured loans that a number of his investments "have yet to reach their full economic potential." Consequently, the cash generated from his overall investments has been insufficient to keep up with loan payments, fund daily operations, make necessary investments and provide working capital, he said in his two-page letter, which is included in court files.

He pledged to provide monthly financial reports to the bankers, but asked that they allow him to work through the problem on his own and not take legal action against him or reveal the financial information he was providing.

He also announced some "ground rules," including: he would make no interest payments on unsecured debt and make no new investments, according to the letter. And he said he wouldn't treat any lender better than any other.

When Mercantile was not paid by Mr. Jacobs on the August due date, the hammer fell. The next day, a lawyer for the bank sent a letter by overnight mail to Mr. Jacobs, demanding all its money along with nearly $300,000 in interest.

Mr. Jacobs didn't pay. Three days later, Mercantile filed suit in Baltimore Circuit Court, demanding all its money back with legal fees and nearly $8,000 a day in interest.

Mr. Jacobs says the actions were part of a "malicious scheme" by the bank to block his restructuring. He filed his own suit on Sept. 14, demanding at least $125 million in compensation and penalties. Both cases are pending, but the two sides jointly asked for a delay and are reportedly discussing a possible settlement.

Meanwhile, the court, at the bank's request, issued writs of garnishments, effectively freezing the assets of Mr. Jacobs at three New York banks: Morgan Guaranty Trust, Chemical Bank and Citibank. Another court order freezes payments to Mr. Jacobs from the Orioles.

Mr. Jacobs' business empire

A native of Cambridge, Mass., and graduate of Yale University, Mr. Jacobs maintains his primary office and residence in New York. He heads a small Wall Street investment firm called E. S. Jacobs & Co., which, among other things, buys and sells companies, often merging organizations or streamlining them and then reselling.

Even in a business that thrives on stealth, Mr. Jacobs has maintained an extraordinarily low profile. While he declines to discuss any of his business dealings, public records show that he's invested in companies involved in a wide range of industries, including real estate development, computers, restaurants, beef slaughtering and Mexican food. Many of his holdings are in private businesses, so it is difficult to estimate his net worth.

Investors such as Mr. Jacobs were the talk of Wall Street during the 1980s, buying up companies with little money down while collecting big fees for their efforts. But hobbled by crushing debt -- and the economic slowdown of the 1990s -- many of the so-called "corporate raiders" have since crashed and burned.

One of Mr. Jacobs' biggest deals, the merger of Memorex Corp. and Telex Corp. in 1987, landed in bankruptcy court early this year. A restructuring plan cut Mr. Jacobs' 35 percent stake in the computer equipment giant to 1.8 percent.

While negotiations were going on with Memorex-Telex creditors, trouble was looming with another Jacobs' holding. Triangle Pacific Corp., a Dallas-based cabinet and wood floor maker, was defaulting on $170 million worth of debt.

Last year, a spokesman said Mr. Jacobs was financially sound and that for every deal that goes bust, several others succeed. For example, Mr. Jacobs three years ago helped form Systemix, a California-based biotechnology company, with a reported $8 million in venture capital. Public records do not reveal how much Mr. Jacobs invested, but last February he sold 1.5 million shares of the company for about $109 million, according to documents filed with regulators.

Even so, he was falling behind on his bills, the bankers charge.

Manufacturers and Traders Trust Co., a Buffalo-based lender, took Mr. Jacobs to court in two cases this year. On March 11, the bank sued Mr. Jacobs for non-payment of $4.5 million of a $6 million loan made in 1989. The case is still pending.

In the second suit, filed the same day, a judge ordered Mr. Jacobs and one of his companies, Anderson Grain and Holding Co., to pay Manufacturers and Traders $250,485 from another loan. Mr. Jacobs has appealed, and the bank this month initiated action in Baltimore Circuit Court, seeking access to the proceeds of any real estate Mr. Jacobs sells in Baltimore.

And in August, on the day Mercantile filed its suit, the Berkshire Bank also sued Mr. Jacobs. The New York-based commercial bank had unsuccessfully demanded full payment of a $490,000 debt on July 29. The case is still pending.

Not all of Mr. Jacobs' problems are with banks. Last year, a group of investors involved in a deal with Mr. Jacobs sued him for $4.7 million. The investors, who in 1989 sold Mr. Jacobs an airplane maintenance company called Rosenbalm Aviation, said he had not made promised payments to them. The dispute is also still in court, with Mr. Jacobs alleging the former partners gave him fraudulent information about the company when he made his investment.

Publicity-shy

The publicity from such court cases is just the type that Mr. Jacobs' works assiduously to avoid. When reporters ask about his business dealings, he has been known to respond with angry letters. In the case of Warfield's, a Baltimore business magazine that has since been transformed into a weekly called Warfield's Business Record, Mr. Jacob's reply took the form of a lawsuit.

Mr. Jacobs filed the $36 million suit after the magazine in August 1991 published an article saying he had financial problems. The article, entitled "Squeeze Play: Eli Jacobs and his debt-ridden lineup," detailed troubles it said Mr. Jacobs was having with a number of investments and alleged that lenders were growing cool to him.

In court papers, Mr. Jacobs' lawyers charged that the article wrongly portrayed him as near personal bankruptcy and having made misleading statements about his net worth.

Mr. Jacobs dropped his suit after the magazine ran a publisher's note retracting some of the article's assertions. "Warfield's has no reason to believe now that Mr. Jacobs confronts personal bankruptcy, that his credit standing has been impaired, or that he is in a cash bind," the note said.

Since buying the Orioles, Mr. Jacobs has caught the eye of the national media. (He even has connections to the media. Mr. Jacobs serves on the board of Times Mirror Corp., owner of several newspapers, including the Los Angeles Times, Newsday, The Sun and The Evening Sun.) In the past 18 months, he has been featured in lengthy profiles in both Business Week and the Wall Street Journal.

The Business Week story identified 29 companies that Mr. Jacobs either owns or owned in whole or part. "Aside from the Orioles, there is not a single, major, thriving business in the bunch. . . . Business Week's analysis suggests that over the long run, Jacobs' companies have tended to suffer from a noxious combination of scant equity and excessive debt," Business Week wrote last November.

The Journal story had a similar theme: "Like other highfliers in the leveraged buy-out binge of the 1980s, the New York-based financier is encountering big problems in the tight-credit 1990s."

Mr. Jacobs is sparsely quoted in both of the articles, which apparently is the way he likes it. He rarely grants interviews and refers most requests for information about his vast business dealings to Kekst and Co. Inc., a New York public relations firm he hired specifically to keep his name out of the news.

Mr. Jacobs contacted the Journal's editors shortly after the article appeared in May 1991. "He went ballistic, making allegations of every kind," says Al Hunt, chief of the Journal's Washington bureau.

Mr. Jacobs charged that the article contained many factual errors and demanded an apology from the paper, Mr. Hunt says. No apology ever appeared. After sending out reporters to "recheck everything," Mr. Hunt says Journal editors concluded the article contained "not a single error."

Team for sale?

Mr. Jacobs' legal troubles, and a series of recent front office moves, have fueled new speculation that sale of the Orioles could be near. He said a year ago that he was considering selling the team, but he has refused to comment since.

In the past two months, the Orioles have signed Cal Ripken Jr. to a $30.5 million contract, completed the formal Camden Yards stadium lease and announced a plan for new, mostly higher, ticket prices next season. These would enhance the value of the team and help a prospective owner better assess its worth.

State Comptroller Louis L. Goldstein says he and other members of the Board of Public Works were told by the Maryland Stadium Authority that the team was being readied for sale.

The lease and other measures were taken to tie up loose ends in preparation for a sale, Mr. Goldstein says the board was told before it approved the lease.

"We thought he wanted to get all that behind him so he could negotiate from a position of strength with a buyer. That is the message we got from the Maryland Stadium Authority people," Mr. Goldstein says.

Stadium Authority Chairman Herbert J. Belgrad says the statements were based on reports reaching him at the time that the team either "was close to being sold or that there was an agreement of sale." But those reports seem less reliable as time has passed without the team being sold, Mr. Belgrad says.

The Orioles are a valuable property. Last October, before the new season even began at Camden Yards, the Orioles expected to generate $9.7 million in net income. The final number could be much greater due to unexpectedly extraordinary attendance figures. Mr. Jacobs' management company will collect $1.325 million in fees from the team this year, according to Orioles budget projections.

One potential obstacle of a sale is the steep price Mr. Jacobs reportedly is seeking: $200 million. That would be nearly three times what he paid and more than enough to pay off the disputed loans. It would far surpass the $125 million recently paid for the Seattle Mariners.

At least two local businessmen say that they wanted to discuss an Orioles purchase with Mr. Jacobs, but that they didn't get very far.

fTC "He wouldn't even come to the phone," says Leonard "Boogie" Weinglass, chairman of the Joppa-based retailer Merry-Go-Round. Stephen L. Miles, a Baltimore lawyer known for his television advertisements, also says Mr. Jacobs rebuffed him. "You would have thought I was trying to get a loan from the guy," Mr. Miles says.

Mr. Jacobs won't discuss what his intentions are with any of his assets, including the team. But his bankers may have something to say about it. To effect a cease-fire, Mr. Jacobs must satisfy his lenders. In his July letter, he promised to do just that. "I am committed," he said in his letter, "to working with you through the challenging period ahead."

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
55°