An informal group of MobileMedia Communications Inc. unsecured creditors has formed to oppose
the company’s proposed merger with Arch Communications Inc., saying it is unfair for them to finance Arch’s merger
effort.
The bondholders in question have hired investment manager firm New Generation Advisers Inc. to represent
them. According to the latest modification of the merger agreement, MobileMedia unsecured creditors will be given
14.3 million shares of Arch stock and the option to buy an additional 108.5 million shares at $2 a share, the proceeds
from which Arch would use to finance the merger. New Generation said the bondholders it represents oppose the idea
of financing Arch’s merger effort.
“MobileMedia’s proposed plan of reorganization is grossly unfair to
unsecured creditors,” said George Putnam, III, president of New Generation.
“We are being asked to
buy Arch Communications stock at above market prices so that Arch can then use our money to take over
MobileMedia … We believe that the unsecured creditors of MobileMedia have been poorly served by the committee
that was supposed to represent all of us in the bankruptcy. We believe that the current plan was pushed through by a
small group of creditors who had other agendas that are not consistent with the desires of the creditor group as a
whole.”
Putnam later clarified that agenda to RCR.
“We believe at least some of the key creditors
also own Arch securities and that may pose a conflict of interest,” he said, adding that he believes two of the
standby purchasers listed in the plan own Arch securities as well.
“Our principal objection to the plan is that it
does not give much value to the bondholders,” he said. “We’re getting almost nothing in return for the
value.”
The proposed merger, originally announced Aug. 20, has been amended several times. Initially, the
agreement called for a cash payoff to MobileMedia secured creditors and a stock issuance and purchase rights offering
to unsecured creditors that would allow them to buy Arch stock based on a price range reflecting Arch’s stock
performance.
Since then, Arch’s stock has fallen significantly, to the point where the merger agreement had to be
modified to set a fixed exercise price for these rights of $2 per share. Arch’s publicly traded stock price was about $1.15
at press time.
That unsecured creditors are being asked to buy Arch stock at prices above its publicly traded value is
the point of contention. “It doesn’t make much economic sense,” Putnam said.
MobileMedia responded
to this opposition in a prepared statement, saying the proposed merger agreement “represents the best available
outcome for all of MobileMedia’s creditors, including its unsecured creditors.”
The logic of the plan is that the
Arch stock given to or bought by MobileMedia unsecured creditors likely will increase in value once the companies are
combined, allowing the group to recoup its claims.
New Generation maintains this is not good enough and said it
believes the plan will not be approved.
“Given the indications of support we have received from a number of
large bondholders, we do not believe that the proposed plan will receive enough votes to be confirmed,” Putnam
said. “We are actively seeking alternative plans for MobileMedia that will produce higher recoveries for all
creditors.”
The plan requires an approval vote by creditors holding at least two-thirds of the dollar amount and
more than half of the total claims.
According to MobileMedia, the agreement has the support of the Official
Committee of Unsecured Creditors, which holds about $230 million in unsecured claims-or close to half the total
unsecured claims.
MobileMedia said the group represented by New Generation Advisers holds only about $11.5
million of MobileMedia bonds, or less than 2.5 percent of its total unsecured claims.
“We’re pretty confident
that it will pass,” said MobileMedia spokeswoman Krista Grossman of the agreement.
MobileMedia said all
its debtors were invited to participate in the process of formulating a reorganization plan during the last year, including
those Class 6 unsecured claims represented by New Generation. However, according to the disclosure statement
approved last month, “New Generation has never brought any alternative transaction to the attention of the
debtors or the committee nor has it offered to participate in the financing of any transaction.”
Putnam
admitted the group has provided little input to date, but said his group normally is a passive investor group and only
took the current action because no one else was opposing the plan. “I didn’t think the Arch plan would go as far
as it has,” he said.
MobileMedia’s plan of reorganization received bankruptcy court approval Dec. 11. The
deadline for all secured and unsecured creditors to vote on the plan is Jan. 27.
