My absurd experiences in North America over the years

On the second Friday of August, Li Fu flew to Chicago again.

Lina's report, which was 47 pages long and included three separate valuation models, was sent to his email before the flight took off.

He read it from beginning to end on the plane and underlined the key numbers with a pen.

At 2 p.m., Oaktree Capital CEO Max appeared as scheduled at a private club on the north bank of the river.

The clubhouse is quite secluded and tastefully decorated, with several old photographs of Chicago hanging on the dark wood walls.

Max was nearly twenty years older than Li Fu, with gray hair and a gentle voice, exuding a gentlemanly demeanor, but every word he uttered carried a sense of precise tact.

The two sat down in a booth by the window, where the Chicago River shimmered in the afternoon sun.

Max's assistant brought over two cups of coffee, then stepped back to the next table, sat down, opened his laptop, and stood like a silent statue.

"Mr. Li, I saw your opposing stance in your speech at the shareholders' meeting," Max said, picking up his coffee cup. "You said we wanted to dismantle Tribune and then just walk away."

"I'm sure I didn't say anything wrong?" Li Fu said with a smile.

“You’re not wrong,” Max put down his glass, “but you’re only half right. Oak isn’t here to destroy this company. We’re here to give its shareholders something back. If we can’t even do that, this company doesn’t even deserve to be restructured.”

Oaktree Capital Management is one of the world’s largest distressed debt investment firms, a typical “vulture investor.”

Their main business is to buy distressed debt at low prices, promote asset restructuring, and ultimately exit with a profit.

The so-called asset restructuring is nothing more than selling off high-quality assets.

Li Fu did not respond immediately.

He opened his briefcase, pulled out a report, and placed it on the table. "This is an independent assessment done by our team. The data comes from publicly available court documents and industry reports. There are no assumptions, only facts."

Max didn't take the report; he merely glanced at the title on the cover and gestured for Li Fu to continue.

When Tribune filed for bankruptcy protection in December 2008, it had total assets of US$76 billion, total liabilities of US$13 billion, and was insolvent by US$54 billion.

The root cause is that the previous owner used high leverage to acquire Tribune, and the leverage collapsed after the financial crisis.

The largest debt was $85 billion in debt held by JPMorgan Chase as agent bank. Oaktree bought Tribune bonds in late 2008 and early 2009, almost at the same time as Li Fu.

If it weren't for Li Fu, they would have held more shares, and the split plan at the last shareholders' meeting wouldn't have encountered any obstacles.

"Your standard practice in similar cases has always been to buy up distressed debt, push for asset restructuring, and cash out," Li Fu said, not entirely dismissing their approach. "This model works well in industrial and retail company bankruptcies, maximizing the protection of creditors' interests..."

Max nodded slightly. "Since you also agree on why there should be such vehement opposition, you can cash out and leave during this process."

Li Fu immediately shook his head, then changed the subject, "However, your team may not realize that the media industry is completely different from industry and retail. The value of media assets lies not in individual assets, but in the synergy between them."

He opened the report and pointed out several key figures: "The Tribune estimated that GG revenue would decline by 15% to 20% year-on-year in the first quarter of last year. The newspaper business alone cannot cover debt costs in the short term. However, the fundamental problem of the entire group is not the depreciation of assets themselves, but the leveraged acquisitions left by Zell that have crushed the cash flow."

The report detailed the core assets that Oaktree Capital proposed to sell, including the Chicago Cubs, a 30% stake in Food Network, and valuations of the Los Angeles Times and the Chicago Tribune.

Lina led her team to conduct cross-valuation of these items, and the data was very reliable.

The Chicago Cubs, along with Wrigley Field, have a combined market value of approximately $7.5 million to $9 million.

Food Network早在2007年就被Scripps Networks评估为数十亿美元的优质资产，Tribune持有30%股权，这部分在2009年的估值区间约为8亿至10亿美元。

These two items alone total more than $15 billion.

In addition to the Los Angeles Times, the Chicago Tribune, and a television network covering 19 markets across the United States, the total value of the assets on the sale list exceeds $30 billion.

"I know you want a one-time cash-out, but once these assets are dismantled, what remains of the Tribune is just an empty shell. It has lost its television broadcasting platform, the stickiness of its sports content, and its ability to produce high-quality content; all that's left is a bunch of continuously loss-making newspapers..."

Li Fu looked at Max, his tone quite serious, "Those reporters and editors who have worked in Chicago and Los Angeles for twenty years, along with the newspaper business, will only decline more rapidly after losing the cooperation of the television station. What will become of them?"

He reiterated that doing so was not a reorganization at all, but rather a less-than-dignified form of euthanasia.

Max frowned upon hearing this. He hadn't expected the young man to be so blunt. "You make me sound like a selfish robber. You can profit and leave; it should be a win-win situation!"

He believed that Li Fu could also make a considerable profit.

Li Fuhe presented the report and shook his head again, "If we want a win-win situation, perhaps we should try a different approach. I can buy back a portion of the shares you received in this bankruptcy reorganization at a premium."

He knew the other party was unlikely to back down, so he had no choice but to resort to this method.

Since Oaktree Capital wants to exit with a profit, it can do so in a more dignified way.

Max was quite surprised to hear this. He finally reached out and picked up the report, flipping through it as he casually asked, "What price are you going to offer?"

"I can offer you two options," Li Fu said earnestly, "The first option is for you to sell no more than half of your shares at 130% of cost."

Based on Oaktree's holding cost, this translates to an annualized return of approximately 35%, which is a relatively substantial exit level in the distressed asset sector. Even if the split plan is approved at the shareholders' meeting, the return will not be much higher than 35%.

This plan is theoretically acceptable, but it's not that appealing.

Because how should the other half leave?

"What about option two?" Max carefully evaluated.

He also didn't want to have too much of a falling out with Li Fu, because the young man was currently riding high, and having more friends was always better than having more enemies.

"The second option is for you to sell all your shares at 120% of the cost price, and I can take them all," Li Fu said, taking into account Max's concerns. "Both options are profitable exits for you, leaving enough room for profit."

Earning a 20% profit in just a few months is considered a high return in any industry.

Max was silent for a moment, his gaze falling on the shimmering waters of the Chicago River outside the window.

If Oaktree Capital, currently the largest shareholder of Forum Media Group, accepts Li Fu's offer, it can lock in profits in advance without bearing subsequent litigation risks or operational risks.

Alternatively, one can choose to retain a portion of their holdings to continue participating in the potential gains following the restructuring.

It certainly looks more respectable than selling off assets.

"Which of these two options do you think is more acceptable?" Li Fu didn't know if he could convince Max, but he had to appear very resolute.

"I must say, you have convinced me," Max finally spoke. "However, I need some time to meet with the team to discuss this. We have been working on breaking down the plan and have no alternative proposals."

"How long will it take?" Li Fu asked without changing his expression.

"I'll give you an answer within a week," Max said, giving a specific timeframe.

"OK," Li Fu nodded, stood up, and extended his hand. "Then I'll wait for your news."

Max patted him on the shoulder as a sign of closeness, then left first with his assistant.

When Li Fu walked out of the club, the Chicago afternoon sun was blazing. He walked to the riverbank, lit a cigarette, and took a deep drag.

He knew very well that the offer was so precise that Oak Tree had no reason to refuse. Continuing to stall would only allow time costs to erode the book value, while accepting the offer would lock in a considerable profit in advance.

He has already planned his next step: after acquiring this stake, he will work with JPMorgan Chase to push the restructuring of the Tribune to focus on retaining core assets and optimizing the debt structure.

He would never dismantle and sell off core assets.

At that time, he needed more shareholder support and faced more resistance, but there was no other way but to continue down this path.