UPI Selects 2 Buyers for Wire Service : Mexican Publisher, Texas Businessman Pledge $40 Million
After a yearlong search for a transfusion of money, United Press International’s management, union and creditors agreed Tuesday to sell the debt-ridden news agency to Mexican newspaper publisher Mario Vazquez-Rana and Houston real estate developer Joe Russo for a sum estimated at $10 million to $25 million.
That sale agreement now requires the approval of the federal bankruptcy judge in Washington who is overseeing the financial reorganization of the wire service. UPI sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on April 28.
The financial details of the proposed sale remained murky. At a press conference Tuesday night in Washington, UPI officials said the buyers were pledging more than $40 million to the news service, of which “between $15 million and $30 million” would be working capital that will fund a five-year reorganization plan, Vazquez-Rana said. That would leave somewhere between $10 million and $25 million to pay off UPI’s creditors, who are owed roughly $30 million, according to sources within the company.
In a story on its own wires, UPI reported that Vazquez-Rana and Russo would pay $21 million in cash: $9.5 million, or 40 cents on the dollar, to unsecured creditors owed $22.8 million; $3.4 million in various back taxes; $4 million to cover bankruptcy claims by employees, and complete payment to all creditors owed $3,000 or less.
Partial Payment
Creditors will not get 100% of what they are owed, said Jules Teitelbaum, general counsel for the unsecured creditors committee.
UPI’s current owners, Nashville businessmen Douglas Ruhe and William Geissler, will receive nothing, UPI said.
Until late Tuesday, Vazquez-Rana and Russo were not partners but rivals mounting competing bids for UPI. They had never even met until Monday, when they happened by chance to meet in the hallways at UPI headquarters in Washington. They had to speak through an interpreter.
During a sometimes frantic, two-day bargaining process, they joined forces in an apparent attempt to sway UPI management, which was weighing three purchase offers in meetings with its creditors committee.
A story on the UPI wire Tuesday said the decision to team up was designed to ease “concern among UPI executives about foreign ownership of the nation’s second-largest news service.”
At the press conference, Vazquez-Rana also addressed that issue. UPI is an American company, he said, “and must be in the United States always.”
As part of an agreement struck with the Wire Service Guild, which represents UPI’s domestic news staff, Vazquez-Rana also agreed that he would not move UPI offices out of Washington or New York without union approval.
Vazquez-Rana said the share of ownership between him and Russo has not yet been worked out, but UPI quoted sources within the company as saying that Russo would have a 10% share.
Vazquez-Rana and Russo outbid only one other suitor for UPI. That was a consortium of institutional investors--four American and two British--backing a management group led by Santa Monica-based Financial News Network.
FNN President John Steinle said in an interview Tuesday that his group also was offering roughly $40 million in immediate and working capital but that his group needed 36 more hours to work out details with UPI management.
UPI Chairman Luis Nogales told the press conference that such an extension was unacceptable. “One has to set deadlines. . . . The time expired. We were looking for firm commitments.”
If approved by the bankruptcy court, the sale would end the tenure of Nashville businessmen Ruhe and Geissler as owners of the wire service. Since buying UPI for $1 from founder E. W. Scripps Co. in 1982, and then being given nearly $10 million from Scripps to run the wire service, Ruhe and Geissler engaged in a series of controversial business arrangements, including selling some profitable parts of UPI to raise needed capital.
When they found themselves still short of cash last December, Ruhe and Geissler directed the company not to pay its payroll taxes for the fourth quarter of 1984. In March, UPI’s principal financier, Los Angeles-based Foothill Capital Corp., stopped UPI’s credit line and forced Ruhe and Geissler to relinquish control to management.
Owns 70 Mexican Papers
The company filed for bankruptcy protection a month later, after the Internal Revenue Service, still trying to collect its back taxes, filed a lien against UPI assets and sought to seize all incoming revenue.
Vazquez-Rana, 53, is owner of the El Sol group of 70 Mexican newspapers, Mexico’s largest newspaper group with a combined circulation of 2.1 million. He also is president of the Mexican Olympic Committee.
Russo is chairman of three Houston financial institutions with assets of more than $300 million.
Russo said his commercial real estate holdings were valued at roughly $700 million.
During the search for a buyer, UPI management told the federal bankruptcy judge at one point that it had as many as 25 potential buyers for the news agency.
However, FNN President John Steinle, the losing bidder, said Tuesday that investment bankers told him that only three final bidders emerged. Steinle said his group became involved only 2 1/2 weeks ago.
UPI also told the bankruptcy judge that it has turned a profit since entering bankruptcy, but members of the creditors committee have publicly expressed doubt about the accounting procedures used to support those claims.
In July, UPI management declined an offer from an unidentified investors group to sell the wire service for $17 million plus additional working capital.
Thomas B. Rosenstiel reported from Los Angeles and Karen Tumulty from Washington.
