Investors Agree to $100-Million Lift for L.A. Gear : Finance: A fund set up by Roy E. Disney and his associates would gain extensive control over the troubled company if the deal is completed.
An investment fund set up by Roy E. Disney and his associates to buy major stakes in faltering companies has tentatively agreed to pump $100 million into slumping sneaker marketer L.A. Gear.
The complicated deal announced Tuesday would give Disney’s Trefoil Capital Investors group extensive control over L.A. Gear’s management and, in effect, a 30% interest in the company. At the same time, the pact requires that Robert Y. Greenberg, L.A. Gear’s chairman and president, remain the top executive of the Marina del Rey-based concern.
L.A. Gear’s stock climbed on the news, rising $1.25 to close at $11.75 on the NewYork Stock Exchange. The stock peaked at $50.375 last May before L.A. Gear’s business went into a nose-dive that led to losses totaling $19.6 million in the company’s two most recently reported quarters.
Josie Esquivel, an analyst with Shearson Lehman Bros., called the proposed deal a “short-term reprieve” for L.A. Gear.
“It gives me some relief that the company isn’t going to do something off the wall in desperation,” Esquivel said. “It’s a huge capital infusion.”
But L.A. Gear officials brushed aside suggestions that the company has been in serious trouble, saying that the Trefoil deal simply is intended to give the nation’s No. 3 sneaker firm more financial flexibility and make it less dependent on bank loans.
“We question whether investors as savvy as (Trefoil chief strategist) Stanley Gold and the management of Trefoil would have invested $100 million if they didn’t think our company had long-term potential. We have great confidence in the future of L.A. Gear. This investment indicates to us that we are not alone in our belief,” said Kevin Ventrudo, L.A. Gear’s chief financial officer.
Under the agreement, Trefoil would pay $100 million to acquire preferred stock in L.A. Gear that could be converted at any time into 8.4 million shares of common stock, or about 30% of the company. Current terms would enable Trefoil to acquire common stock for an investment of $11.94 a share, enabling the fund to earn a profit if the shares climb above that level.
While Trefoil holds the preferred stock, L.A. Gear would pay 7 1/2% annual dividends on the securities. And, beginning in 1996, L.A. Gear would be required over a four-year period to pay back Trefoil in cash for any preferred stock it still holds.
Trefoil would also name three members to L.A. Gear’s board, which would be expanded from five to nine members. The investment fund’s grip on the sneaker company would be further tightened by a provision requiring at least one of Trefoil’s appointees to approve “any material change” in L.A. Gear’s business.
Although characterized as a “definitive agreement,” the deal still hinges on various conditions, including the approval of an 18-member lending group led by Bank of America. The banks will be asked to extend their $300-million loan agreement with L.A. Gear beyond its current Dec. 17 expiration date and to allow dividends to be paid on Trefoil’s preferred stock.
The banks are also expected to be asked to waive a current requirement for L.A. Gear to turn a profit every quarter.
L.A. Gear, in addition, indicated in a news release that “certain material adverse changes” could make the deal unravel. Still, if negotiations move ahead successfully, the deal could be completed as soon as August, following a yet-to-be-scheduled vote by shareholders.
Established with $450 million a year ago as a so-called “white squire” fund, Trefoil has yet to make its first major corporate investment. A definitive agreement it signed to buy 82% of Child World Inc. for $125 million fell apart in November after the toy retailer’s business deteriorated.
But Trefoil’s parent firm, Burbank-based Shamrock Holdings Inc., is considered a major force on Wall Street. It is headed by Roy Disney, vice chairman of the Walt Disney Co. and nephew of the company’s namesake, and Stanley Gold, a lawyer-turned-financier.
One of Shamrock’s biggest coups was its investment in Indiana food-processor Central Soya Co., which it bought in 1985 for $350 million and sold two years later at a $125-million profit. Shamrock also owns the Music Plus and Sound Warehouse record store chains and a string of television and radio stations.
It also launched an unsuccessful takeover for photography giant Polaroid, but made $40 million in the process.
Shamrock has a reputation for taking an active role in its investments and would be expected to do the same at L.A. Gear. MARKET BEAT
L.A. Gear’s lesson for Orion. D3
