FNN Cannot Meet Expenses and Ousts Chief Executive
Financial News Network Inc., disclosing for the first time that the financial crisis surrounding the 24-hour business news channel is much deeper than originally thought, said it cannot meet operating expenses and is seeking to renegotiate its bank loans and leasing agreements.
The boards of FNN and its 47% owner, Infotechnology Inc., said Chief Executive Earl W. Brian has been ousted and replaced by Alan J. Hirschfield and Allan R. Tessler, who have been named interim co-chief executives. The boards several weeks ago took over day-to-day operating control of the companies.
FNN and Infotech have been engulfed in financial turmoil since early in the month, when they first disclosed that an auditing dispute could lead to a quarterly charge against earnings and place the companies in default on their bank loans. Since then, the directors have dismissed their auditors, fired FNN’s chief financial officer and let go FNN’s Los Angeles-based finance staff.
Infotech also revealed in a filing with the Securities and Exchange Commission that it is cooperating with a formal SEC investigation of the company that began Oct. 12. Infotech described the investigation as a “continuation of an informal SEC staff inquiry” but did not elaborate.
A formal investigation is authorized by SEC commissioners after the enforcement division staff makes a preliminary inquiry and submits a report.
Wednesday’s disclosure that the company is having trouble meeting operating expenses only further confused analysts, almost all of whom said FNN and Infotech are refusing to explain why the network has been hit by a cash flow shortage.
“They aren’t providing any information, so it’s hard to figure out what’s going on,” said Ken Goldman, an analyst with Hanifen Imhoff Inc., a Denver investment company.
Brian will continue as a director of both firms, although analysts said he has effectively been relieved of executive duties. According to the latest available proxy statements, Brian owns 9% of Infotech and less than 1% of FNN.
Both Hirschfield and Tessler have intimate experience with troubled companies.
Hirschfield, who earlier this year became a managing director at the New York investment bank of Wertheim Schroder & Co., was chief executive of Columbia Pictures during the David Begelman check-forging scandal in the late 1970s. Hirschfield was unavailable for comment.
Tessler has been an Infotech board member and from July to December, 1989, was chairman of Imperial Corp. of America, parent of Imperial Savings in San Diego, which was seized by federal regulators last February.
But one observer said Tessler deserves no direct blame for Imperial’s failure, as the thrift was already in bad shape when he took over. A former partner in the New York law firm of Shea & Gould, he is sole stockholder of International Finance Group, an investment company.
According to sources, Hirschfield was brought in by Tessler after the board first approached turnaround artist Sanford C. Sigoloff, but he was not available. Senior managers were told Tuesday that Brian would be stepping down, although the decision had actually been made weeks ago as the depth of the financial problems became apparent to the boards.
The directors said that the interim chief executives will consider the “sale of some or all of the companies’ businesses.”
Bringing aboard Hirschfield and Tessler is a clear sign, according to one investor who owns about 3% of FNN’s stock, “that they will clean it up and sell it.”
Mark Reilly, a partner in the New York investment firm of MacDonald Grippo Reilly, agreed that a sale of FNN is possible. “This signifies the assets are really up for sale,” he said. “But they’ve got to move quickly in restructuring and selling.”
Despite the financial problems, analysts still rate highly FNN’s core business, a channel available to 35 million cable TV homes. Less certain is an array of ancillary businesses, such as sophisticated stock quote services and Infotech’s 97% ownership of ailing United Press International. Infotech and FNN said they have received several bids for their combined 51% stake in the Learning Channel.
At least a handful of major media companies are looking at the possibility of buying FNN or Infotech outright. Those companies, which include Time Warner Inc., Capital Cities/ABC Inc. and Turner Broadcasting System Inc., would be able to buy either company for substantially less than would have been paid even six months ago since the values of media companies have sharply declined.
The directors also said they needed to renegotiate payment schedules for $88 million in lease contracts. That figure surprised analysts, who noted that on top of the previously disclosed $70 million in bank debt, FNN and Infotech now have at least $158 million in liabilities.
Last November, FNN said it had established a $50-million credit agreement with Security Pacific and Toronto Dominion Bank in New York. That credit line is now virtually exhausted. In addition, Infotech has used up $20.7 million of its own $25-million credit line with Security Pacific and Midlantic banks, which is secured by FNN stock.
“Each succeeding announcement has been more dismal than the last,” said Lorraine Maxfield, an analyst with Paulson Investment Co. in Portland, Ore. “This appears to be the tip of the iceberg.”
Since the original disclosure on Oct. 1, FNN’s chief financial officer, C. Steven Bolen, has been fired, two other finance department employees were suspended and the company’s 20-member finance and accounting staff in Los Angeles was dismissed.
The board said Bolen was fired for allegedly misappropriating company funds, and the finance staff was let go to move that department closer to executives in New York and Washington.
Analysts wonder what is next, given the already rapid succession of startling disclosures in recent weeks. But one company executive maintained that no further management shake-ups are imminent and that Hirschfield and Tessler will decide which assets will be sold in the coming weeks.
In over-the-counter trading Wednesday, FNN lost $1.25 a share to close at $3.125, while Infotech lost $1.0625 to close at $3.0625.
