Jackson Sony/ATV Sold: The Purchase Option And The “Trigger Notice”
The Trigger notice was not “shotgun” and Sony’s purchase option was a credit support and more an obligation than a right. Media never divulged the reason why Sony/ATV had such a huge corporate debt, and how revenues were being distributed. Yet these documents have never been “sealed”. They were accessible to journalists. Does it mean that investigative journalism no longer exists, or that MEDIA lives on financial connivances with the corporations?
Rummaging through the old Michael Jackson financial lawsuits -forgotten in the depths of the court archives- there were revealing documents, clearing out most of the inconsistencies appeared in the news concerning Michael Jackson financial problems.
Since no party retrieved the documents, the sealed records were destroyed on 13/10/2011. What the reader sees on this blog is material available to the press since then. Maybe only one-tenth of it was divulged. Few headlines after the closing of the lawsuit, due to Michael Jackson words released through his PR people.
It confirms that investigative journalism no longer exists that MEDIA lives on financial connivances with the corporations and don’t check the sources. Inside these documents, there is enough material to overturn the news on Michael’s financial problems and the key for understanding Michael Jackson’s words when he was telling us: “They want my catalog…. there is a big fight for it”. Frequently he addressed these issues.
Before approaching the documents and showing “the numbers people have played on him”, let’s face for good, how misleading the media were towards MJ.
Fabricated headlines that became a relentless smear campaign that wanted him ruined, and on the verge of bankruptcy since 1995. Everybody can remember headlines such as “Jacko: Advisers made sure he wasn’t Dead” (published on Fox News and signed by R. Friedman) trumpeting that “Michael Jackson will give up a part of his most prized asset for 200 million to Sony Corp”.
The testimony of Mr. Daniel Groppel – then Managing Director of Fortress Corporation – while reviewing an exhibit related to the Prescient lawsuit, was an enlightening reading.
The document was nothing less than a negotiation that took place toward the end of December 2005 when MJ’s team asked for an extension of time to stop the payment due to Bank of America then purchased by Fortress Investment.
Here it must be clear that Fortress, though purchased in May 2005 the Bank of America loans, had not yet refinanced the loan itself, so to give an extension, all conditions had to match with the Bank of America package of collaterals.
Bank of America’s conditions was pretty strict, and the loans were extremely over-collateralized (MJ had all his assets pledged, a personal guarantee and Neverland included). Part of the conditions in case of defaulting on the loans was the ability to put the Sony/ATV loan – payable by Sony – for the amount of the loan itself, which was $200 million.
Then Sony or a third-party would have paid the difference of the catalog value to MJ, as per the clauses described in the SONY/ATV Operating Agreement. So Fortress, to execute the 30 days forbearance agreement requested by MJ, would get the extension of Sony’s credit support for the same extended period. Here you can read how Mr. Groppel explained the matter of extension.
You don’t have to be a financial expert to understand that MIJAC Catalogue was superfluous as collateral the transaction. The 50% of Sony/ATV interests would have been more than enough to secure the loan. And it so happened to be Rob Wiesenthal – Chief Financial Officer of Sony Corporation of America the guy who gave all the guidelines to Fortress in to get MIJAC as extra collateral.
With MJ’s new advisor Mr. Ron Burkle and his legal team – Sony had a change of path, while still keeping tied up MJ through Fortress somehow, if defaulting, hoping to put their hands on the MIJAC catalog. Here you can read how the over collateral matter was explained.
Below “Put Option” clause as per Sony/ATV Operating Agreement on December 20, 2005
The media divulged messy and “selective” news. In this respect, one wonders what kind of document was delivered to reporters – and above all, who instructed to give away these crappy masterpieces worthy of winning the Pulitzer for the trashiest journalism of the decade? If ever there was one.
The documents show that what the media have been reporting since 2002 about MJ’s investments -from Bank of America to Fortress – are lies that have been deliberately released to mislead the public about MJ as a person. All the narrative about this cause is approximative and manipulated and has been a set-up since the beginning.
The point is that Michael Jackson was a target, and Sony a powerful group not in the business of exclusive gossip headlines, whilst Michael Jackson was the biggest victim in history of that type of journalism.
To confirm the above, read what happened on the morning of April 13, 2006. Fortress had not even made the loan disbursement – the closing of the transaction happened in the afternoon of the same day – but somehow, the press spread the news that Michael Jackson had to have the new loan done, and had to agree with Sony the sale of part of his 50% stake in Sony/ATV. Lawyers dealing with the Prescient lawsuit knew nothing about the turn of events: they had to interrupt the deposition because there was no such document within the court papers. Here you can read the conversation of the morning of April 13, 2006
“The Purchase Option” allegedly Sony wanted in exchange for guarantee support”
The executed copy of the Credit and Security Agreement between Fortress Credit Corp and Michael Jackson Trust is a 35-page document consisting of five main articles and 20 sub-sections. The first article describes the “definition and interpretation” of the document. Here the definition related to the Sony Purchase Option:
Actually the so-called “purchase Option” is nothing else that the “Put option”.
The “put option” was inserted at the beginning of Sony/ATV full administration of ATV catalog. It has been inserted in the third amendment of the “Operating Agreement” on December 23, 1998, and regardless of the dates written on it, it was subjected to amendments each time management or investments changed.
In the occasion of the Fortress refinancing the “put option” comes into force 3 months after the date of loan disbursement and in place up to the end of the loan. The reason is that from May 2 up to July 30, 2006, the option to purchase the Sony shares in Sony/ATV was on Michael Jackson’s side, as per the dates agreed in the forbearance agreement. This is called the baseball arbitration.
The “put option” was exercised by both parties for a limited period of time, and was there in order to protect all parties’ interests. The purpose of keeping up the undertaking to the end of the loan was an additional collateral representing the face value of the outstanding principal amount of the loan. The cost of this additional collateral guarantee was for MJ account.
The genesis of all of the above comes from the “Sony/ATV Operating Agreement”– its conditions were written in 1995 – and stipulated that associates had to guarantee each other investments in order to protect the company interests.
Here is how the agreement starts:
What MEDIA never divulged was the reason why Sony/ATV had such a huge corporate debt, and in which fashion the revenues were being distributed. Sony/ATV had a high debt at the corporate level due to the administration costs invoiced by Sony Music. The debt depreciated the value of the asset.
And despite having more than 100 million in cash most of them were distributed to Sony, and “sucked out” – as one of the lawyers worded – by Mr. Koppeland and many other people. Mr. Groppel confirmed to be aware that ” a lot was going on in Sony”. Here the full conversation PDF 1PDF 2
The 1995 “operating agreement” and its relevant amendments show the details of the deal and confirm that Sony never had a purchase option that they could exercise no matter what. It was always for a restricted time and in case of not execution, the same option would turn automatically to MJ and vice versa (in the context of the operating agreement).
The “out option” is a sort of first “auction” price and in case of the opening of the proceeding – subsequent rules had to be applied in order to get the real and commercial value of the asset. On top of all the amounts of the “put option” represented a collateral guarantee to the principal amount of Michael Jackson loan and not a pledge over his 25% as media insistently reported.
In 2006, Fortress assessed Sony/ATV value oscillating between 1 billion and 1.6 billion – and more if management costs billed by Sony weren’t been that huge (about 250 million of administration costs per year).
It’s also understandable why both parties never purchased each other at that time. In fact, during the 10 years partnership, the company’s value grew starkly – and neither Sony nor MJ had the chance to pay each other such big amounts.
MJ suffered big losses due to bad managers, who helped themselves into his accounts, stealing and investing in questionable business endeavours (Myung-Ho Lee stole millions and lost MJ a lot of money by suggesting investments like Tickets.com Inc.; then Dieter Wiesner with improbable ventures such as Mystery Drinks and clotheslines that never came to life (just to give a few examples). Not to mention the 2005 criminal trial that exhausted MJ’s vital energy and personal money.
On the other hand, Sony was in financial distress since 2002 and had another deep crisis in 2008.
As you can see, MJ’s financial transactions are referred as investments – not loans, which is what this was. When Robert Holmes à Court sold ATV Music to Michael Jackson, documents show that MJ arranged a 30,000,000 (US) loan from Chemical Bank to facilitate the purchase, before transferring the ownership of Northern Songs to Nassau in the Bahamas – where two bankers were appointed to the board.
The whole ATV group was acquired (including Bruton Music Ltd., ITC Filmscores Ltd., Marble Arch Music Ltd., and the long-established publishers, Lawrence Wright Music Co. Ltd.). There is no clear documentation of the total price paid, although press reports indicate Usd. 47 million.
The money of these transactions are used to make investments, pay corporate bills, lawyers, employees, offices and business expansions – not to buy personal cars or shopping antiques, as MEDIA and some “so-called” friend claim; shopping was paid with the royalties he deserved after 45 years of hard work.
But Sony/ATV structure was harmful to his finances from all points of view, and his money somehow kept disappearing.
To conclude with the “operating agreement” subject, I’d like to approach the Sony 1995 “trigger clause” – the one that allowed Sony to finally take the whole of Michael Jackson’s 50% share in Sony/ATV.
Section 8 of the Article no 7 “Transfer and membership Interests”, describes the “Exit Strategies”, and states that – starting from ninety months after the company commenced to administer the ATV catalog (which only happened in 1998, due to MJ’s previous agreement with EMI), or the tenth anniversary of the “operating agreement” date – either Sony Music Publishing Members or MJ (or MJ’s Estate in the case MJ’s early death) shall have the right to notify the other Members that they desire to implement an exit strategy from the deal. A First Trigger Notice may be given upon MJ’s earlier death if (i) MJ owned at least a 20 percent Membership Interest at the time of his death, and has not taken any actions to nominate a successor – a reason which should cause his estate to be unable to validly elect his successor, (ii) Feel free to read and form your own opinion: Trigger Notice
The emails leaked in 2014 revealed that Sony was considering to eventually sell Sony/ATV music publishing unit. After having read the documents behind the final decision, those emails take on a completely different meaning, and it is evident they were already in merging preparations with the MJ Estate executors – making clear reference to the confidentiality of the negotiations, because MJ’s corporate investments passed from Fortress to Barclays Bank (refinancing the 50% Sony/ATV interests) and HSBC Bank (refinancing the part of the loan with MIJAC catalogue as collateral), then in December 2010 – the facility involving Sony/ATV 50% interest – was refinanced with Union of Swiss Banks.
Seen as the “put option” work, and considering the collateral documentation Sony had to provide in order to enable the bank to set up a new financial facility, either partner would have been able to open the negotiation under the term of the trigger arbitration once the UBS loan reached the expiring date. Apparently, Sony refused to provide further guarantees:
However this video might tell that actually the estate’s executors and Sony orchestrated a PR sham in the media, just to divert attention from the fact that this passage of ownership had been written since MJ passed away.
Either way, things have opened and developed. Since MJ’s death, no suitable successor has been appointed – Mr. Branca is an executor, not an Estate heir. Then…
- his nomination – if it ever would have happened – would have created an additional conflict of interest.
- his fiscal problems regarding tax fines generated by the undervaluation in connection to MJ’s likeness and assets at the time of his death are still an open issue.
So it doesn’t matter in which perspective this whole business can be observed, the executors are always behind the motivations.
But I leave that for a future generation to decide.
- Case16787632 Prescient Acquisition Group vs MJ_Publsihing Trust (2006-2008)