Cash-Rich Northview Corp. Looks for Right Acquisition
Northview Corp., which has cut the last of its ties with the troubled Ivan Boesky, still faces troubles of its own.
Northview, which last week reported a $746,000 net loss for the first quarter ended March 31, faces a string of future quarterly losses that will continue until the company acquires a cash cow to replace the profitable mortgage banking and arbitrage operation that Boesky ran for Northview.
The Boesky-led business generated $10.6 million in operating income during 1986, compared to just $7 million in operating income generated by the 43 Vagabond Inns in California and the Southwest.
Earlier this year, Northview severed the last of its ties with Boesky’s investment operations.
But without that investment business, first quarter revenue fell from $5.7 million to $2.2 million, and the motel operator “will be reporting operating losses indefinitely, until we redeploy our cash,” according to Robert Loeffler, a retired Los Angeles lawyer who became Northview’s chairman in December.
Abundance of Cash
With about $90 million in cash and securities, and $24 million invested in a Costa Mesa hotel that likely will be sold, the lodging company is cash rich. That cash hoard will be used to acquire a business outside the lodging industry.
On the flip side of the ledger, Northview must pay $13.5 million in interest this year alone on nearly $100 million in debt that comes due by 1995.
Refinancing $70 million in 15% subordinated debentures is not an option that is open to Northview because of an unknown liability stemming from three lawsuits generated by Boesky’s arbitrage activities.
That unknown liability could come into better focus in the next two years, however. One suit that seeks $235 million in damages from Boesky-associated investment companies recently was dismissed, and Loeffler believes other potential exposure will fall by the wayside.
But making the right acquisition will be a tough task, observers suggested.
Northview has retained Paine Webber Inc. as its adviser, and already has looked at several companies, including a financial institution. So far Northview has passed on all of the opportunities.
Northview’s shopping list is wide open. Loeffler’s only restriction is that Paine Webber not look at acquisitions where the need for regulatory approvals would slow down the transaction.
Loeffler’s only other directive to Paine Webber was to find a company with a management team that would stay in place after an acquisition is completed.
Too Many Hotel Rooms
Northview won’t expand its hotel business because of a room glut that has depressed occupancy rates in most parts of the country.
The decision to go on the acquisition trail, while forced by the company’s debt position, surprised some company observers who, given the potential liability generated by Boesky’s involvement, expected Loeffler to supervise the liquidation of Northview.
That expectation surfaced because of Loeffler’s past experience with troubled firms. Loeffler, who recently retired from the Los Angeles office of Jones, Day, Reavis & Pogue, served as the court appointed trustee for Equity Funding Corp. of America during the mid-1970s. During the early 1980s, he served as a court-appointed trustee in the Wickes Cos. bankruptcy.
Loeffler was selected because of his executive and legal skills, not because of any familiarity with the lodging industry.
“My working knowledge of the hotel business is how to register, leave a wake-up call and order from room service,” quipped Loeffler, who leaves operation of the company’s 43 motels to the existing staff.
Surprised by Offer
Loeffler acknowledged that he was surprised when Northview outside counsel William Gould, a Los Angeles attorney who had worked with Loeffler for two years on Equity Funding, approached him about becoming Northview’s chairman, president and chief executive.
“I thought, finally, I’ll be able to get a seat in the Polo Lounge,” quipped Loeffler, referring to a common misconception that Northview owned the Beverly Hills Hotel.
In reality, the Beverly Hills Hotel Corp. owned both the posh Beverly Hills Hotel and a controlling interest in Northview. The hotel was operated independently of Northview’s Vagabond motels.
After joining Northview in December, Loeffler and Northview’s board spent “two months considering what the hell do we do with the company,” Loeffler said. “We eventually determined that the (Boesky) litigation would not have the effect of circumscribing the company.”
But even before reaching that “subjective evaluation” of Northview’s future, Loeffler said he first became “ . . . totally satisfied with the integrity of the company. I wouldn’t have become associated with (Northview) without being 100% satisfied” that the company was free of the arbitrage dealings that ensnarled Boesky’s other operations.
Directors in State of Shock
“Fortunately, none of the other board members knew anything at all about what had been going on,” said William Gould, the Los Angeles-based attorney who serves as Northview’s outside counsel. “The directors were in a state of shock when they found out about (Boesky’s) disclosure.”
Gould guided Northview to Loeffler because “of his impeccable reputation and the fact that he’s extremely knowledgeable about securities laws and litigation. We knew we faced a difficult period of time with substantial litigation exposure.”
Fortunately for Northview, Loeffler “happened to be retiring (from Jones Day) at the time the board was looking for candidates,” Gould said.
Having helped Northview’s board make the difficult decision to keep Northview alive, Loeffler now is addressing the “difficult assignment . . . to go out and find a cash cow at a reasonable price,” Gould said. “That’s more easily said than done.”
While his Northview duties “won’t be as challenging” as the role he played at Equity Funding, Loeffler was “sufficiently intrigued to say yes, even though I’d planned on retirement.”
Loeffler lives in Los Angeles and commutes to Northview’s San Diego offices whenever the need arises.
