Family
Business Magazine E-Newsletter
December
2, 2008
Contents
1.
Analysis: The federal estate tax and family businesses.
2.
N.Y. Yankees name Hal Steinbrenner to succeed his father.
3.
Shari Redstone leading discussions with lenders.
4.
N.Y. Times cuts dividend by 74%; scion returns to paper.
5.
Bankruptcy judge approves sale of Boscov's to patriarch.
6.
Tips for surviving in an economic downturn.
7.
Mistakes to avoid when selling your family business.
1. Analysis: The federal estate tax
and family businesses. "As the U.S. prepares for
President-Elect Barack Obama's inauguration and the post-Bush era,
economic issues have taken center stage," writes Lloyd E. Shefsky, a
clinical professor at the Kellogg School of Management, Northwestern
University, and co-director of Kellogg's Center for Family Enterprises.
"But one important topic remains largely unmentioned: the impact of the
federal estate tax on family businesses.... While there's no disputing
the general value of an estate tax, I suggest that the current
application of the tax to family businesses may not be ideal."
Read
Shefsky's full analysis here.
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2. N.Y. Yankees name Hal Steinbrenner
to succeed his father. Major League Baseball's owners have
approved 39-year-old Hal Steinbrenner to succeed his father, George, as
the controlling partner of the New York Yankees, the Wall Street Journal reported.
Hal's brother Hank, 51, will continue as the Yankees' co-chairman and
will "retain authority for baseball-related decisions," the article
said. George Steinbrenner, 78, has been ailing for several years.
(Source: Wall Street Journal,
Nov. 21, 2008.)
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3. Shari Redstone leading discussions
with lenders. Sumner Redstone's estranged daughter, Shari,
is leading negotiations with National Amusements' lenders in an effort
to restructure $1.6 billion in debt, according to news reports.
"Because of reasons related to conflicts of interest, Sumner can't
involve himself in negotiations to restructure the debt," Business Week reported. One option,
the article said, is to sell a stake to private investors and split the
company in two, with Shari getting the theater chain and Sumner getting
Viacom and CBS. "Shari tried a similar maneuver last year, only to be
thwarted by her father, who controls 80% of National Amusements vs.
Shari's 20%," Business Week
reported. "Now she may have the leverage." While Sumner has advocated
selling the theater business, Shari "is a big believer in the theaters,
and has labored to upgrade them and expand the business abroad, moves
that contributed to the company's debt burden," according to a Wall Street Journal report. Sumner
Redstone recently told analysts that the real estate occupied by
National Amusements' theaters can be sold off, Business Week noted, but "Given the
state of the property market and the economy, this is unlikely to
happen quickly enough to reduce the debt and keep creditors at bay."
The Wall Street Journal said
Shari issued a statement denying that the theater business caused the
debt problems, "something her camp suspected her father was suggesting
behind the scenes." Another option for Sumner is selling his interests
in video game company Midway Games Inc. and slot-machine company WMS
Industries Inc., the reports noted. Shari was opposed to the
acquisition of Midway and quit as its chairman on Nov. 7, according to Business Week. (Sources: Business Week, Nov. 12, 2008; Wall Street Journal, Nov. 3, 2008.)
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4. N.Y. Times cuts dividend by 74%;
scion returns to paper. The New York Times Co. cut its
quarterly dividend by 74% as the company's stock dropped to its lowest
point in decades, the Wall Street
Journal reported. "The dividend is a weighty issue for the Times
because it is the chief source of income for many members of the
Ochs-Sulzberger family ...," the Journal
article noted. "The cut could test the family's commitment to the
paper." Meanwhile, Arthur Sulzberger III, the 28-year-old son of New York Times publisher Arthur
Sulzberger Jr., is leaving his job as a reporter at the Oregonian
newspaper to return to the Times,
according to Portland's Willamette
Week. Sulzberger III is considered a potential successor to his
father, who earlier this year filed for divorce from Sulzberger III's
mother, Gail Gregg, New York
magazine reported. (Sources: Wall
Street Journal, Nov. 21, 2008; Willamette Week, Nov. 19, 2008; New York, Nov. 20, 2008.)
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5.
Bankruptcy judge approves sale of Boscov's to patriarch. A
federal bankruptcy judge approved the sale of the Boscov's department
store chain to patriarch Albert R. Boscov in a $305 million deal "that
is expected to result in the ouster" of next-generation CEO Ken Lakin,
the Philadelphia Inquirer
reported. "The buyback will allow the company to continue operating,
rather than potentially shutting the doors of the nation's oldest
family-owned department store chain." During an earlier appearance in
court, Boscov criticized the 2006 decision by Lakin, who is his nephew,
to expand the chain by acquiring ten stores, the article said. In a
previous article, the Inquirer reported
that Pennsylvania Gov. Ed Rendell had arranged for $35 million in
state-backed loans from the U.S. Department of Housing and Urban
Development to help Boscov's emerge from bankruptcy and protect 5,000
jobs in the state. The loans are contingent on the chain's emerging
from bankruptcy protection, the report noted. "If the chain is later
forced to liquidate, the loans will be repaid through inventory and
real estate," the article said. The Inquirer
noted that Albert Boscov's offer for the chain included $100
million in cash from "friends and family members who have signed on as
investors" and that the offer "has the support of the banks and
unsecured creditors to whom the company owes millions." (Source: Philadelphia Inquirer, Nov. 28,
2008 and Nov. 21, 2008.)
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6. Tips for surviving in an economic
downturn. In The Family
Business Policies & Procedures Handbook, family business
adviser Francois de Visscher offers some advice on surviving in an
economic downturn:
- Revise your business plan. Look at
your budget projections. The demand for your products and services may
fall off. Your receivables may take more time to collect. This will
have a negative impact on cash flow and, of course, growth plans.
Consider what expenses you can cut or defer.
- Nurture the patient capital of your
shareholders. Keeping them informed in down times is the surest
way to rally their support.
- Don't forget to access your company's
social capital. Make employees and shareholders, and their
networks, part of your solution by giving them incentives (not
necessarily monetary) to collect ideas for saving money and pursuing
new business.
"During
economic slowdowns, many owners just sit, worry and wait to get hit by
the recession," de Visscher writes. "Not enough business owners step
back, search for ideas and revise their plans. Those who do are more
likely to survive."
For practical,
step-by-step advice on planning a smooth succession, governing your
family company, strategic planning and more, see The Family Business Policies &
Procedures Handbook. Learn more about the book and see the table
of contents here.
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7. Mistakes to avoid when selling
your family business. In the current issue of Family Business Agenda, Dennis J.
White of the law firm of McDermott Will & Emery LLP warns readers
of ten common mistakes made by family business owners when they try to
sell their companies. Here are five of them:
- Failure to integrate estate and business
planning. Without appropriate planning, effective control of the
business can be spread among a disparate group of beneficiaries with
very different levels of business acumen and varied objectives. Such
arrangements often result in stalemate and disaster.
- Failure to line up the family members.
If the selling group appears to be in disarray, some potential buyers
will not even spend the time to investigate the opportunity. One
approach is to designate a single person as the selling group's
representative and negotiator.
- Failure to assemble an experienced team.
Family business leaders are often out of their depth when it comes to
an M&A transaction. Moreover, they often avoid or delay engaging a
team to help them maximize value.
- Failure to prepare for due diligence.
A buyer who is truly interested will deliver to the seller a lengthy
and detailed due diligence questionnaire. All too often, inexperienced
sellers are unprepared to complete these forms. Well-advised sellers
anticipate the suitor's questions by setting up data rooms, often
electronic in nature, where all the information is waiting.
- Failure to properly structure the deal.
If planning is undertaken early enough, the sellers can structure the
operating entity as an S corporation or an LLC and avoid
corporate-level tax.
For more advice
on preparing for the sale of your business, obtaining the maximum value
for your firm and other M&A topics, see Family Business Agenda. The bonus
publication is included in a subscription to the print edition of Family Business Magazine. Learn how
to subscribe here.
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