What’s In Store for the Texas Rangers Auction by Maury Brown August 3, 2010 UPDATE (4pm ET): Bob Nightengale of USA Today reports that News Corp. will not be bidding for the Rangers, according to Randy Freer, president of Fox Sports Networks. Also, Dennis Gilbert has dropped out, although he had dropped off the radar some time ago, and was thought to be marrying up with Jim Crane. Sources indicated to me early Tuesday that Mark Cuban and Jim Crane have filed bids simultaneously ahead of the 8pm CT deadline and are working together. That leaves Dallas businessman Jeff Beck as the only open question mark for tomorrow’s auction. A bit of history will be made on Weds. when the Texas Rangers will be put up for auction, with its outcome determined at a hearing on Thurs. To place this in perspective, the last time an MLB club was auctioned out of bankruptcy was the Baltimore Orioles in 1993. Here’s some key information to know leading up to the auction: Who’s Bidding? The group led by Chuck Greenberg and Nolan Ryan is, of course, going to be there, but beyond that, official bidders have until 8pm CT on Tues. night to file for the Weds. auction that begins at 9am CT and will be overseen by the Honorable Russell F. Nelms. Dallas Mavericks owner Mark Cuban has filed documents with the court in attempts to gain access to the club purchase, and Houston businessman Jim Crane has been involved with mediation sessions with William Snyder, the chief restructuring officer in the case. Dallas businessman Jeff Beck is a possibility, as well. What is unknown at the time of publication is whether Rupert Murdoch’s News Corp. will be preapproved by MLB for bidding on the club, as well. If so, there could be as many as 5 groups anteing up for the purchase of the club. Still, if no other bidders outside of the Greenberg/Ryan group show up for the auction, the proceedings will be shifted from an auction to hearing on the confirmation of the Rangers’ Third Amended Plan of Reorganization, filed July 30, 2010. What’s the Bidding Going to Start At? Determining the very lowest a group can bid means looking at the Greenberg/Ryan’s group offer. The approx. $520 million “stalking horse” bid is really broken down into three parts. Rangers Baseball Express (the group led by Greenberg/Ryan) is assuming approx. $220 million in liabilities of the Rangers. Secondly, approx. $220 million is then funneled back Rangers’ Equity Owners and the creditors. After that, an approx. $80 million balance will be paid to other creditors following closing of the sale. The “stalking horse” provision of the bid process has the first bid needing to be $15 million over, so Judge Michael Lynn has said that in principle, any bidder that has at least $95 million ready in hand, can be involved in the overbid process. That doesn’t mean $95 million is what is going to be the bid price. It means that bidders, other than Greenberg/Ryan have been given the opportunity to use “bridge funding” from creditors to cover any balance above the $95 million. Certainly, all the bidders (should more than Greenberg/Ryan be at auction on Weds) will have far more to place at bid. But, any and all funding by the bidders through bridge funding has to be paid off no later than Oct 11, more than two months from the end of the auction. Should the winner of the auction fail to reach all the funding by Oct. 11, it would likely mean that the process would be opened back up, and yet another auction could take place. But, the focus should be on the $306.7 million cash offer Greenberg/Ryan has on the table on Weds. Once the overbid of $15 million is added as a minimum, all subsequent bids will be in $2 million increments. What’s Up for Sale? Given that there are still looming questions about what William Snyder, the chief restructuring officer called “insider” transactions surrounding the lease of Rangers Ballpark of Arlington, as well as the Lenders arguing that “it is impossible for…. Potential bidders – in the time allotted… — to negotiate their own separate agreements with the parties that have the right to transfer them,” Lynn is suggesting that “it is preferable that a bidder exclude tainted assets or [other parties]” that may seek to claim damages from the “eve-of-filing transaction” that involves the lease transfer and/or the $70 million separate land deal that has been brokered between Tom Hicks and the Greenberg/Ryan group. That “side deal” includes the parking around the Ballpark that is a key revenue stream for both game day events, as well as during the NFL season when the lots can be used for new Cowboy Stadium. Another side deal that has raised eyebrows is an aircraft lease. If those aspects are removed, as Lynn has suggested, it likely means that just the Rangers will be up for sale. Sorting out the other piece, critical to the functioning of the Rangers, will be a tricky matter to undertake outside of the sales process, so it is unclear how those pieces function in the overall. How Much is the “Breakup Fee”? If the Greenberg/Ryan group does not win at auction, they are entitled to compensation for all the legal work done in advance that the other bidders have not had to deal with. Judge Lynn has altered how much the group could gain back, and the amount is dependent on their decision making process. They can elect to: A) 125% of the group’s costs or expenses, or; B) $10 million before the court determines which of RBE expenses and costs are allowable. At no point will the break-up fee be allowed to exceed $13 million Does Lynn Have to Take the Highest Bid? This is the $64,000 question in all of this: Does Judge Lynn have to accept the highest bid, or is this a matter of seeing that there was a fair process in play? The answers to this will come out of the bidding on Weds. and from how Lynn interprets matters when the outcome of the auction is covered during hearing on the Thursday after auction. When Will The Club Sale Be Approved By MLB? Having MLB’s owners vote to approve ownership transfer is part of the league’s constitution. Article V, Section 2 of the Constitution (see it here) goes on to say that three-fourths of the leagues owners must approve, “The sale or transfer of a control interest in any Club”. The league has said that if the preferred group of Greenberg/Ryan is selected through the auction process, they can have the ownership approval completed by Aug. 12, the day that funding commitments tied to the Asset Purchase Agreement reached between the Rangers and the group is set to expire. If another bidding group comes out on top, the league has said it could be as long as 9 months (although, sources close to The Biz of Baseball repeatedly said that it would likely be 3 months), before owners would vote, citing the need for each owner to conduct due-diligence on the prospective owner. Mark Cuban, who has verbally said that he is going to actively pursue purchase of the club through the auction, is seeking to have MLB go through the approval process no later than Aug. 16, saying that must close on or before the date. The filing does not elaborate as to why Cuban is in need of MLB’s approval by vote less than two weeks after the auction will have been completed. Could a Marriage Occur? Whether it’s posturing or alliances being truly forged, there has been word that Cuban could be possibly aligning himself with Jim Crane. Crane had been portrayed by the creditors as having a “significantly higher bid” when they were maneuvering to get the auction to occur. As of early Tues. sources indicate that the two are, indeed, working together making them a formidable pairing in terms of funding. It should be noted, the league has not looked favorably upon Crane since he backed out of the purchase of the Houston Astros several years ago at the 11th hour. What Happens if the League Does Not Approve a Bidder? If the league does not approve the winner of the auction, one could surmise that the club would become “wards of the state”, with MLB taking over the operations of the club until the smoke had cleared in the courts. The last time this occurred was with the then Montreal Expos in Nov. of 2001. The Lenders would most assuredly challenge MLB’s league constitution saying that the bankruptcy process to pay back lenders supersedes that of the league. Will it All be Over Soon? The short answer is, no. In some form, the Rangers sale will continue to drag on in the courts. If the creditors lose out, they have said they will appeal to the U.S. Court of Appeals for the 5th Circuit in New Orleans. The basis of the appeal would be centered on Judge Lynn not granting enough time for competitive bidding. Should the Greenberg/Ryan group lose, it seems very possible the lawsuits will be filed there, as well. But, those are likely to be actions on the periphery. The focus is really now on two dates: Aug. 12, should the Greenberg/Ryan group win, and Oct. 11 for any other groups in the hunt. On the latter, if the funding is reached in time, the focus will then move to MLB’s approval process. So, while Tues., Weds. and Thurs. will set into motion how the ownership of the Texas Rangers could wind up, the sports and business pages will be sprinkled with the bankruptcy case, likely for many months to come.