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Dolan shareholders: Company is worth more

The Dolan Company’s proposed reorganization plan to exit Chapter 11 bankruptcy is a hostile takeover that significantly undervalues the company’s worth, an official shareholders committee claims in court documents made public Tuesday.

The Campbell Mithun Tower in Minneapolis, the headquarters of The Dolan Company. (Submitted photo)

The Campbell Mithun Tower in Minneapolis, the headquarters of The Dolan Company. (Submitted photo)

The shareholders also allege Bayside Capital Inc., which would become the largest owner of the company once the reorganization is approved, worked to push Dolan into bankruptcy after all members of the company’s board of directors “implored stakeholders to pursue non-bankruptcy options.” Minneapolis-based Dolan is the parent company of The Daily Record.

“Bayside is not the case’s ‘white-knight,’ as presented,” lawyers for the shareholders said. “Its actions reflect a far more Machiavellian nature.”

In response to the shareholders’ objection to the plan, lawyers for Dolan said the company’s valuation is the “best estimate” based on a comprehensive evaluation of all business units, creating a plan that is fair and equitable to all creditors. They also called the shareholders’ objections “sour grapes by an out-of-the-money constituency.”

Kevin Nystrom, Dolan’s chief restructuring officer, said it is not unusual for shareholders to file such an objection.

“They have nothing to lose,” he said. “The plan is getting them nothing. Their argument is to try to get them something.”

Gabrielle M. Duvall, a bankruptcy lawyer not involved in the case, said the shareholders’ committee has been “very active.”

“They have filed everything that is driving the case,” said Duvall, a partner with Linowes and Blocher LLP in Bethesda. “They are gearing up for a fight.”

Dolan filed for bankruptcy in March using what is known as a “pre-packaged bankruptcy,” meaning a majority of creditors are on board with the reorganization plan, which could take months or years in a normal Chapter 11 bankruptcy. The plan would allow Dolan to reduce its secured debt from $170 million to approximately $50 million by having creditors exchange existing bank debt for equity ownership in the company.

Executives with The Daily Record have said the news organization’s finances remain healthy and they expect the newspaper to maintain its strong position after the reorganization has been finalized.

A federal bankruptcy judge in Delaware is scheduled to hold another hearing today on whether to confirm the plan. Two full days of hearings were held last week and at least two partial days of hearings are scheduled for next week, according to Nystrom. A decision on the plan is not expected until at least the end of June, he added.

“The company is working to resolve this as fast as possible,” Nystrom said.

The official shareholders’ committee, formed by the U.S. Trustee, filed a preliminary objection to the plan in April. The U.S. Trustee, which serves as a watchdog for the Department of Justice, agreed and blocked approval until at least the end of May.

On May 19, the shareholders filed their formal objection to the plan under seal, according to court records. Judge Brendan L. Shannon approved on Tuesday a stipulation unsealing the objection with redactions.

The shareholders allege an investment banker hired by Bayside provided a “made-to-order” valuation of Dolan in order to support the bankruptcy plan. Under the bankruptcy plan, Dolan has a valuation midpoint of $118.4 million, according to the shareholders’ motion. But an analysis used by the board of directors in its failed attempt to avoid bankruptcy gave the company a midpoint value of $211.8 million, according to the shareholders’ motion. Dolan also put out feelers for mergers and acquisitions last summer and fall and received back indications of interest between $205 million and $235.6 million, according to the shareholders’ motion.

The financial projections “collectively reflect the view that these are terrible businesses, in which no reasonable investor would dare invest, soon to go the way of the ‘horse and buggy,’” the shareholders motion states. “The surrounding case data — including Bayside’s aggressive pursuit of these businesses — reflects a far different reality.”

Lawyers for Dolan disputed the characterization of Bayside.

“These allegations strike to the heart of the philosophy and practice of distressed debt for equity financial players — an industry that provides companies with a ‘fresh start’ when they are in distress and are otherwise unable to meet their financial obligations,” they said.

The shareholders also allege Nystrom “was something of a transaction confidant” of Bayside executives who wrote in one email that he was “worried the Board would do something stupid” before the bankruptcy was filed.

Nystrom Tuesday denied the shareholders’ allegations and said his email was taken out of context. Lawyers for Dolan, in their response brief, said Nystrom has never worked for Bayside and criticized the shareholders for tarnishing his reputation.