For an investment of about $12.8 million, New Jersey businessman Arthur M. Goldberg has gained control of Bally Manufacturing Corp., a company with $3 billion in assets and $2 billion in annual revenues.
Yet several people familiar with the Chicago firm believe what Goldberg got for his money is a lot of trouble.
They say Goldberg will have his hands full extricating Bally, a gaming and fitness club company, from a liquidity crisis. There is concern in financial markets that Bally and/or one of its subsidiaries could seek protection from creditors under the U.S. bankruptcy code.
In a telephone interview Friday from his offices in Somerset, N.J., Goldberg said the term ”Chapter 11” isn`t in his vocabulary. He said the seriousness of Bally`s financial situation should not be underestimated.
”This is a for-real situation,” he said.
Bally`s fate could soon be in the hands of bondholders, who will be asked to restructure the debt of a Bally subsidiary operating two Nevada casinos. These days, bondholders are being asked to bail out many highly leveraged firms, such as Bally, that financed past growth through a junk-bond market in disarray.
Casino owner Donald Trump, has been trying to restructure his strangling debt burden, but some bondholders have been unwilling to accept his terms.
On Oct. 11, Bally`s board decided it would not make a $15 million interest payment due four days later on notes of the Nevada subsidiary and would suspend the quarterly common-stock dividend. The board also decided to consider restructuring the company`s debt and possibly divesting some or all of the non-casino operations.
The board`s decisions came at a emergency meeting in New York and called by Goldberg, anxious about the interest payment due the next week.
At the meeting, Goldberg presented the board with a restructuring plan. And Robert E. Mullane, who led Bally over the last 11 years, stepped down as chairman and chief executive, retiring at age 58.
Goldberg was named Bally`s interim chief executive and a member of a new four-member office of the chairman, which also includes two Bally executives and an outside director.
James A. Lovell, a Bally director since 1986 and an executive vice president of Centel Corp., said he was impressed by Goldberg at the New York meeting, his first encounter with the New Jersey investor.
”He seems to be a take-charge guy, a go-getter,” said Lovell. ”He seemed to be the natural person to lead as the interim CEO. He has a definite financial interest in Bally, and, if he can salvage his investment and help other shareholders, more power to him.”
In the 1980s, two companies made Goldberg their chief executive after he acquired stakes in them. He has acquired some companies, but others have resisted his attempts to gain control, by buying back his shares.
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”Some boards just cave in to him because they haven`t been doing a good job and they have no stomach for a fight,” said one takeover-stock speculator.
Several people familiar with Bally say that description fits the company`s board.
The sources said the board`s outside members, several of whom also receive consulting fees from Bally, too easily deferred to Mullane and accepted his reassurances that there was enough cash to meet debt obligations. Critics say the board should have balked at the high prices Mullane paid for three casinos in 1986 and 1987 and the ”greenmail,” or premium over market price, he paid to buy back the stock and stop a 1987 takeover threat from Trump.
They claim the board should have been distressed about the multimillion-dollar compensation of several executives, the heavy spending by the casino and fitness units, the relatively small amount of cash ”upstreamed” from those units to the parent and the plunging value of Bally`s shares.
On the New York Stock Exchange, Bally`s shares closed Friday at $3.62 a share, after trading as high as $21.25 in the past 52 weeks. Goldberg paid an average $8.05 a share for his stake.
In U.S. District Court here, a shareholder suit was filed Wednesday against Bally, Mullane and some of the firm`s officers and directors, accusing them of violating securities laws by issuing false and misleading statements about the company`s financial health.
Bally declined to comment on the suit.
According to Lovell, it wasn`t until the emergency board meeting Oct. 11 that most directors realized that the cash-flow problem was critical.
”We realized we were in deeper trouble than we had been led to believe,” he said.
Efforts to reach Mullane for comment were unsuccessful.
Goldberg said last week he has owned stock in Bally off and on for several years and also knows the firm through his friend Richard Gillman, who is head of Bally`s casino operations. Gillman recently was named a member of the new office of the chairman.
Goldberg said he approached Mullane ”about two or three years ago” and proposed a friendly takeover of Bally, but walked away after Mullane showed no interest.
Goldberg started buying Bally shares again this spring. He met several times with Mullane and was told that, if he acquired more than a 5 percent stake in Bally, Mullane would recommend he be elected to the board. Goldberg went over that level in September.
Goldberg, Bally`s largest shareholder with a 5.4 percent stake, was elected to the board only five days before the New York meeting. His election occurred at a meeting in Scotland which he didn`t attend, and by directors who knew him primarily by reputation.
Goldberg, 48, was born in Newark, N.J. He was an undergraduate at Rutgers University and received a law degree at Villanova University.
In 1968, he succeeded his ailing father as chief executive of the family- owned Transco Group Inc., a trucking firm, and headed it until it was sold in 1986.
In 1981, he acquired ”a very friendly” 20 percent stake in Triangle Industries Inc. and joined that firm`s board. He soon was asked to become its chief executive. In 1983, he sold Triangle to investors Norman Peltz and Peter May.
Goldberg then bought stakes in various companies, including specialty retailer G.C. Murphy and Oak Brook-based Great Lakes International Inc. He has been criticized for accepting ”greenmail” from the companies, but he said he sold both stakes in the open market, losing $1 million on the latter investment.
In 1985, Goldberg and the investment firm of Bear, Stearns & Co. bought a large stake in International Controls Corp. and received three board seats. After the engineering and manufacturing company`s chief executive was stricken by a heart attack, the board asked Goldberg to become CEO.
Goldberg and Bear Stearns took International Control private a few years later. Goldberg said he and Bear Stearns disagreed over the direction of the company and agreed to resolve the dispute by selling the company in early 1989.
Early this year, Goldberg acquired DiGiorgio Corp., a San Francisco-based food wholesaler and building products firm, for about $153 million. Goldberg moved DiGiorgio`s headquarters to Somerset, N.J., and sold some of its non-food assets.
Goldberg also is a limited partner in Gemini Partners, an investment group led by Emanuel Pearlman that recently waged a proxy fight against Healthco International Inc., a dental-equipment firm.
Goldberg rejects characterizations of himself as a raider or someone who puts companies in play.
”I prefer to own and operate companies,” he said.
Goldberg said that his tenure as Bally chief executive is up to the board but that he expects to be an investor in the firm for a long time.
In the last week or so, he has been investigating the situation at Bally, talking to people in the company and to its bankers and suppliers.
He said he has cut about $6 million in costs from the company by, among other things, disposing of the corporate jet, the executive dining room and other perks.
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He declined to say whether consulting fees of some board members are in jeopardy. However, a source close to the company said all consulting arrangements are being reviewed.