Eason keeps control
Creative Loafing’s seemingly endless dirge continues.
A bankruptcy judge ruled today against a motion by the company’s main creditor to take control from CEO Ben Eason. That means the battle for control between Eason and Atalaya Capital Management will continue through most of April in U.S. Bankruptcy Court in Tampa.
At the same time, Judge Caryl Delano fired a warning shot at Eason and his lawyers. The company’s plan to pull itself out of Chapter 11 protection is an “uphill battle,” she said, and Eason would be wise to seek mediation with Atalaya, a New York-based hedge fund that lent $31 million to Eason in 2007.
At least for now, however, mediation doesn’t appear to be in the cards. According to Tampa Creative Loafing’s Political Whore blog:
Although it was a strong win for the current CL management, Delano also struck a cautious tone, saying that she believed the company has “an uphill battle” ahead to have any reorganization plan confirmed by the credits since Atalaya is far and wide the biggest creditor and could choose to vote against any plan. Delano suggested mediation for the two sides, but after a 30-minute recess in which the two sides’ lawyers talked by telephone, the idea of having a mediator appointed was tabled for now, at least until April 20 when Creative Loafing reveals more details of its reorganization plan, including possible new investors.
As mentioned earlier, this isn’t entirely unexpected. Bankruptcy courts generally rule in favor of the debtor-operator (in this case, Eason) before the court gets a chance to rule on the company’s proposed plan. That means the company will continue to be saddled by bankruptcy costs for the time being.
Next chance to get out of this mess: April 20.
CL ruling today
Creative Loafing Inc. management, employees and creditors will find out shortly after 2 p.m. who will control — for the time being — the parent company of CL/Atlanta and five other weekly newspapers. That’s when Bankruptcy Court Judge Caryl Delano has scheduled an announcement of her decision on a motion by the main creditor, Atalaya Capital Management, to effectively take control of the company.
This is just one motion in CLI’s Chapter 11 bankruptcy case, so the larger battle for control will continue if the judge rules against Atalaya’s motion. Bankruptcy attorneys I’ve spoken to say it’s unusual for a “debtor-operator” (such as CLI’s current management) to loose control at this relatively early stage in the game.
If DeLano rules in favor of Atalya, the New York-based hedge fund promises to bolster operations.
If current CEO Ben Eason retains control, he says he’ll move forward with his “Digital Transformation Strategy,” which calls for continuing to shrink the papers. He’ll have to continue to use the company’s resources to battle for his interests in bankruptcy court.
(Beware, my bias: Eason fired me as part as Creative Loafing editor in Atlanta over cuts he wanted to make to Editorial Department.)
Not easy on Eason
Creative Loafing Inc. CEO Ben Eason had a rough afternoon on the stand yesterday in U.S. Bankruptcy Court, according to an account published by one of his own reporters early this morning.
After testifying that he’s led a transformation over the last few months to a web-first-print-second company (as predicted here), Eason had to endure a “withering cross-examination” by Tyler Brown, attorney for CLI’s lead creditor, Atalaya Capital Management, which is trying to gain control of the alt-weekly newspaper publisher. According to CL/Tampa’s Wayne Garcia:
Brown meticulously walked Eason through his own financials, getting Eason to begrudgingly acknowledge that online revenues have dropped month-over-month since CL went into bankruptcy court on Sept. 29, 2008. (Eason countered that those drops are explained by differently sized months, some with four weeks and others with five weeks, as well as seasonality. On a month vs. previous year’s month basis, online advertising is significantly up, he testified. “I believe that the trends that we put out there are positive.”)
Brown asked Eason about the $3.5 million-$4 million in cuts made to the current year’s budget, which resulted in about 50 layoffs, 40 percent of which came in editorial news departments. Brown’s questions insinuated that the cuts actually hurt the chain and profits and forced Eason to admit that the chain’s “preeminent position” in its cities is actually sliding, or at least has slid in Atlanta, where the paper was founded. A Media Audit in November showed the rival Sunday Paper having a higher readership than the Atlanta flagship paper, a fact that it took 3-4 attempts by Brown to get Eason to agree.
The cross-exam was contentious, with Eason making a snide remark aimed at Brown at one point and disagreeing strongly with the dire portrayal of the company by Atalaya. His most common answers were “That’s not true” and that’s “not necessarily the case.” The cross went after 6:30 p.m., after which rebuttal testimony was expected.
As disclosed previously on this blog, I was fired by Eason last fall as CL/Atlanta’s editor after protesting the heavy tilt toward cutting editorial staff and other front-line departments. Ironically, I think Eason understands part of the long-term picture confronting the company quite well: Alt-weeklies are well positioned to thrive on the web, and they have no choice but to make a radical transition.
But transformations of this kind are all about timing and execution, both of which have gotten Eason into trouble in the past and again this time. For one thing, it now appears that he panicked last year by trying to change everything all at once without having the competency in place to make the necessary changes effectively. For another, he underestimated how important it is to continue to do the basics — for example, to provide the resources to produce great content, to pay attention to whether the paper is actually getting distributed, and to have leaders in place who understand the local market. In my experience, Ben was disturbingly dismissive of such fundamentals, preferring to keep his mind in the abstract world of long-term trends and grand ideas.
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