Within the span of a few hours on Friday, Nick Denton’s Gawker Media Group filed for Chapter 11 bankruptcy protection and entered into an asset purchase agreement to sell its seven media brands to Ziff Davis.
But that doesn’t mean Ziff Davis now owns Gawker Media and its seven online brands, Jerrold Bregman, a partner at Brutzkus Gubner who specializes in Chapter 11 and litigation matters, told TheWrap.
Nor does it mean that Hulk Hogan will receive the full $140 million judgment from his successful invasion of privacy lawsuit against the company for the 2012 publication of excerpts of a sex tape depicting the former wrestler.
“I would expect, that when all is said and done, ultimately there would be a settlement with a substantial reduction in the amount of the claim,” Bregman said.
We asked Bregman to answer some of our burning questions about Gawker’s future.
Does Ziff Davis own Gawker now?
No. The sale will be conducted via bankruptcy court auction, during which other prospective buyers can bid up the price for the company. Last week, an individual familiar with the company’s operations told TheWrap that Gawker had received “multiple” bids in excess of $100 million.
Ziff Davis shouldn’t get too excited until the sale is final, as Bregman said it’s likely that other companies will enter the bidding and drive up the price.
“The rules of bankruptcy auctions are supposed to be designed to invite competitive bidding so that the bankruptcy estate can maximize the value of the assets and recover the highest amount possible,” said Bregman, whose firm is not directly involved in the Gawker case at present. “It’s supposed to be competitive.”
Still, Ziff Davis would likely be considered a “stalking-horse buyer” that has agreed to purchase Gawker’s assets and would be compensated “in the event they’re overbid,” Bregman said.
The Gawker case has not been assigned to a judge so it’s too soon to say how quickly an auction might be scheduled.
Why did Gawker file for bankruptcy?
For a company like Denton’s facing a huge potential liability in that $140 million legal judgment, bankruptcy may be the best means to keep the company from shutting down altogether. “The whole point of Chapter 11 is to keep viable business assets going,” Bregman said.
In a case like this, Gawker will be sold under section 363 of the bankruptcy code — which allows assets to be sold “free and clear of any and all claims and interests,” Bregman said. That means the buyer purchases the assets and none of the obligations and liabilities associated with those assets travel to the buyer — like that whopping $140 million legal judgment.
“You can’t simply buy a company and take all of its assets without taking its liabilities — unless it’s in bankruptcy,” Bregman said. “Bankruptcy provides a very helpful way to maximize the value of the assets.”
Will Hulk Hogan get paid?
Bregman says there are a few steps that need to occur before Hogan sees any money from Gawker.
First, he would have to win the appeal that Gawker has filed — where the size of the judgment could well be reduced even if the verdict is upheld.
But then the wrestler, whose real name is Terry Bollea, would join what is likely a long list of Gawker’s creditors “entitled to his prorated share of the net proceed from the sale,” Bergman said. (If the company is sold for $100 million, a prorated share would be well short of $140 million.)
Moreover, Hogan would be regarded as an unsecured creditor — which would put him well behind those who supplied lines of credit and secured debt to Gawker Media. “In the Gawker case, there are some secured creditors and there lots of unsecured creditors,” Bregman said.
So the net proceeds of the sale, after the cost of the sale itself, will be distributed first to the secured creditors. And then, whatever is leftover will be shared pro rata by all the unsecured creditors, including Hulk Hogan.