Financial News Network Inc., In re
| Decision Date | 25 November 1992 |
| Docket Number | D,No. 1546,1546 |
| Citation | 980 F.2d 165 |
| Parties | , 23 Bankr.Ct.Dec. 1229, Bankr. L. Rep. P 75,029 In re FINANCIAL NEWS NETWORK INC., Debtor. CONSUMER NEWS AND BUSINESS CHANNEL PARTNERSHIP, Appellant, v. FINANCIAL NEWS NETWORK INC.; Official Committee of Unsecured Creditors of Financial News Network, Incorporated; Security Pacific National Bank, Appellee. ocket 92-5011. |
| Court | U.S. Court of Appeals — Second Circuit |
Richard Cotton, New York City (Ellen Miller-Wachtel, Maria Barton, National Broadcasting Co., Inc., Bruce R. Zirinsky, Steven Alan Reiss, Deborah Deitsch-Perez, Banks Tarver, Roger F. Assad, Weil, Gotshal & Manges, of counsel), for appellant CNBC, Inc.
Robert B. Krakow, New York City, Ronald S. Orr, Gibson, Dunn & Crutcher, for Financial News Network Inc.; Geoffrey M. Kalmus, Kenneth H. Eckstein, Kramer, Levin, Nessen, Kamin & Frankel, for Official Committee of Unsecured Creditors of Financial News Network Inc. (of counsel), for appellees.
Before: FEINBERG and CARDAMONE, Circuit Judges, and LARIMER, District Judge. *
This appeal concerns the difficult balancing act a bankruptcy court must perform when it conducts an auction of a debtor's assets. It walks a tightrope between, on the one hand, providing for an orderly bidding process, recognizing the danger that absent such a fixed and fair process bidders may decline to participate in the auction; and, on the other hand, retaining the liberty to respond to differing circumstances so as to obtain the greatest return for the bankrupt estate.
Consumer News and Business Channel Partnership (CNBC, Consumer News or appellant) appeals from a December 30, 1991 order of the United States District Court for the Southern District of New York (Lasker, J.) affirming the May 10, 1991 order of the Southern District Bankruptcy Court (Conrad, J.). CNBC purchased the media assets of the debtor, Financial News Network, Inc. (Financial News or debtor), after an auction in the bankruptcy court at which CNBC and Dow Jones/Group W Television Company were the only bidders.
Consumer News now contends that the bankruptcy court abused its discretion in considering evidence, following the apparent close of bidding, of a cash offer by Dillon Read & Co., Inc.--Dow Jones/Group W's investment bank--to purchase a portion of the debtor's contingent future revenue stream, which formed a component of Dow Jones/Group W's bid. Appellant believes that the bankruptcy court's consideration of this late offer was improper and that it forced appellant to increase its prior bid by $5 million. CNBC urges on appeal that as a result, it should be liable to pay only the amount it previously offered for the media assets of Financial News, rather than the full amount of its enhanced bid.
We examine first the facts that led to the auction in bankruptcy court and then the circumstances of that sale. Financial News, a cable television programming service specializing in financial and business news, began soliciting purchasers in November 1990 for its media assets. Anticipating filing a Chapter 11 bankruptcy petition and realizing that the corporation's business and asset values would deteriorate rapidly during bankruptcy, it attempted to dispose of its assets through a private sale. On February 11, 1991 it reached an agreement in principle with Dow Jones/Group W for the latter to purchase its media assets for $90 million, subject to the terms of a definitive agreement, which the parties then undertook to negotiate.
Two weeks later on February 25--while these negotiations were underway--Consumer News submitted a higher bid to purchase these same assets for $105 million. The offer contained two conditions: (1) Financial News had to keep the offer secret prior to accepting or rejecting it, and (2) it had to decide by 11:00 p.m. that same day. The offer also included a provision for payment of a "breakup fee" to Consumer News if Financial News did not accept the bid. Financial News' board of directors approved the offer and authorized the execution of an agreement to sell its assets to Consumer News.
In accordance with the executed agreement, Financial News filed a chapter 11 petition within a week and sought expedited approval of the purchase agreement. Dow Jones/Group W objected to the proposed sale, and moved before the bankruptcy court for an opportunity to submit its own bid for the debtor's media assets. The bankruptcy court granted the motion and gave Dow Jones/Group W until March 25 to submit a written competing bid that was to conform to the terms of Consumer News' outstanding offer in all particulars except price. In the event of further competition, an auction sale was ordered for At the April 3 auction, Dow Jones/Group W, unlike Consumer News, refused to keep its offer open until May 31 regardless of which bid was successful. For that reason, the bankruptcy court refused to consider Dow Jones/Group W's bid, and instead awarded the assets to CNBC for $105 million. CNBC then voluntarily raised its bid price to $115 million to equal that of Dow Jones/Group W. The latter appealed the bankruptcy court decision selling the debtor's media assets to appellant. The district court, focusing on the importance of achieving maximum benefit for the bankrupt estate and warning against overly strict adherence to bidding rules, reversed and remanded for a new auction. See In re Financial News Network, Inc., 126 B.R. 152 (S.D.N.Y.1991).
April 3. Dow Jones/Group W thereafter submitted a written bid that it valued at $115 million
At the new auction held on May 7, 1991 Dow Jones/Group W bid $167.1 million, comprised as follows: (1) $125 million in cash; (2) $9.3 million in assumed liabilities; (3) $7.6 million representing the present value of a guaranteed share of the future revenues of Financial News; and (4) $25.2 million representing the alleged present value of an unguaranteed share of the debtor's future revenues (contingent future revenues). Consumer News objected to this bid because the assumed liability and "soft money" contingent future revenues components did not comply with the bankruptcy court's requirement of conforming bids. At the same time it submitted its own bid for $135 million in cash, and asked the bankruptcy court to rule on the value of the assumed liabilities and "soft money" components of the Dow Jones/Group W bid. The court declined to so rule. Appellant then revised its bid upward to $140 million in cash, plus an assumption of up to $6.1 million of the debtor's liabilities. Neither party offered any further bids and the auction was declared closed.
Following a luncheon recess, Consumer News raised its bid again by agreeing to assume $3.2 million in additional liabilities that had been included in the Dow Jones/Group W bid, so that both bids now called for the assumption of liabilities valued at $9.3 million. Appellant characterized this increase merely as a "clarification" of its bid, but the bankruptcy judge rejected this view of the increase, stating that it changed a closed bid and that it was accepted because it would be unfair to creditors and equity holders not to accept it. No objection was lodged to Consumer News' new, revised offer.
At this point in the auction the undisputed elements of the two offers were as follows:
Consumer News Dow Jones/Group W
Cash $140.0 M $125.0 M
Assumed Liabilities 9.3 M 9.3 M
Guaranteed Future
Revenues 0 7.6 M
Break-up Fee (est.) - 8.2 M
------------------- -------------
Total $149.3 M $133.7 M
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Only the value of the unguaranteed "soft money" future revenue portion of Dow Jones/Group W's bid remained at issue. The bankruptcy court decided to conduct an evidentiary hearing to determine its worth.
The parties dispute the outcome of the hearing. Consumer News asserts the hearing revealed that the "soft money" portion of Dow Jones/Group W's bid was worthless, and that at the end of the hearing, "the merits of the competing bids were clear." Nonetheless, there was testimony at the hearing supporting Dow Jones/Group W's valuation of over seven million dollars. The then president of Financial News testified that with the news gathering capability and financial assets of Dow On the morning following the hearing, Dillon Read, Dow Jones/Group W's investment bank, submitted an offer directly to Financial News to purchase approximately three-quarters of the unguaranteed revenue sharing component of the debtor's assets for $17 million in cash upon sale of the media assets to Dow Jones/Group W. The debtor asked the bankruptcy court to delay its ruling on the auction so that the Dillon Read proposal could be brought before it. The bankruptcy court immediately communicated with the parties via a teleconference call to determine whether to consider Dillon Read's proposal. Financial News and Dow Jones/Group W contended that the bankruptcy court should consider the proposal as additional evidence probative of the value of the Dow Jones/Group W bid. Consumer News vigorously objected, insisting that the proposal constituted a new bid by a competitor after the close of bidding.
Jones/Group W he believed his company's future revenue projections--upon which Dow Jones/Group W relied in making its valuation--could be met. In response to evidence that Dow Jones/Group W's own projections predicted substantially lower revenues than Financial News' projections, the senior vice president of Dow Jones explained that his company's lower estimates were designed to evaluate Financial News as a potential acquisition and hence were conservative figures. He added that Dow Jones/Group W expected to exceed these internal estimates. The president of Group W Satellite Communications similarly described the Dow Jones/Group W
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