Los Angeles Business Journal

Sept. 29, 2003

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Fortune Lost to Bad Investments, Adelson Seeks Bankruptcy Shield

By RiShawn Biddle
Staff Reporter

At 73, Mervyn Adelson should be enjoying the golden years of a life that’s been marked by accomplishment.

The founder of Lorimar-Telepictures made two fortunes – one in real estate, the other in entertainment – before selling his company, producer of TV’s “Dallas” and “The Waltons,” to what is now AOL Time Warner Inc. for $675 million in 1989.

At one time, his personal wealth was estimated at over $300 million. No longer.

Thanks to a string of bad dot-com and entertainment investments, Adelson has debts that could total as much as $50 million.

Better Times (photo): Mervyn Adelson, left, has split up with his wife, Thea.

The one-time Time Warner vice chairman filed for Chapter 11 personal bankruptcy protection on Sept. 9, just as Union Bank of California was preparing to auction off his six-acre vacation compound in Aspen, Colo. to repay $25 million in loans, according to Adelson’s lawyer, David Levene.

The loans, taken out against the property, were used to finance some of Adelson’s investments, Levene said.

“He’s a good guy and he’s taking it hard. He never wanted to be in this position,” said Levene. “He’s just hoping that he can work this out quickly.”

Adelson’s personal life is also a mess. He faces charges of misdemeanor child abuse, reckless driving and driving under the influence of drugs in Aspen after allegedly ramming his SUV into two cars and two trees – with his two year-old daughter in tow, according to newspaper reports. Meanwhile his wife Thea, a lawyer 33 years his junior, has filed for divorce, according to her uncle, Beverly Hills attorney Joseph Nesis. She is also listed as a creditor in the bankruptcy.

Adelson owes $10 million to City National Bank, according to Levene, and $1 million in fees to law firm Howrey Simon Arnold & White for work on an insurance case. Adelson’s longtime counsel, Christensen Miller Fink Jacobs Glaser Weil & Shapiro, is also a creditor.

He claims between $50 million to $100 million in assets, according to the petition. Besides the Aspen compound, Adelson owns a home in the Malibu Hills and a stake in his private equity firm, EastWest VentureGroup. Another affiliate, Adelson Investors LLC, filed for bankruptcy on Sept. 9, owing Adelson $9 million.

Calls to Adelson’s Santa Monica office were not returned.

Well-placed friends

Certainly, the dot-com bust, along with the collapse of the tech and energy markets, has resulted in astounding reverses for paper millionaires. The net worth of Selim Zilkha, for example, declined by $872 million as the value of his shares in trouble-plagued El Paso Corp. plummeted.

But financial reverses such as those suffered by Adelson are rare. Oil heir Nelson Bunker Hunt filed for bankruptcy during the ’80s after a bungled attempt to corner the silver market, while another Texas millionaire, T. Cullen Davis wound up owing creditors $865 million after the collapse of his oilfield equipment business.

“If it was typical, you wouldn’t be calling me about it,” said hotel baron Lewis Wolff.

Adelson, who was married to television news personality Barbara Walters from 1986 to 1992, left the Time Warner board three years ago. But he remains on the boards of the Aspen Institute and the Simon Wiesenthal Center, and is friends with former junk bond king Michael Milken and talent manager Bernie Brillstein.

In June, he became a director of IDT Corp., whose board includes former Gov. Pete Wilson.

“Merv’s a natty dresser, he walks on his toes like an athlete and he commands attention as soon as he walks in,” said Brillstein. “He’s a straight shooter and you understand him immediately.”

The son of a Russian immigrant who formed a grocery chain, Adelson made his first fortune in real estate in the 1950s, teaming up with a group that included mob-connected financier Moe Dalitz on a string of developments, such as the famed La Costa resort in Carlsbad.

In 1969, he teamed up with producer Lee Rich to start Lorimar, which churned out hit television shows like “Eight Is Enough” and “Knots Landing.” But an ill-fated expansion into television stations and advertising forced him into a merger with what was then Warner Communications, which bought Lorimar for $675 million in 1989.

After the sale, Adelson launched EastWest. It was originally backed by Warner, which agreed to put up $56 million, along with $300 million in contingent financing by Drexel Burnham Lambert. Warner backed out shortly after Drexel’s collapse.

After a string of small investments, Adelson teamed up with Milken to move fully into venture capital. EastWest eventually built a portfolio worth more than $250 million. EastWest also formed a venture capital fund, Wasserstein Adelson Ventures, with investment bank Wasserstein & Co., in 1996, building a $136 million portfolio by 2001. He also brought on board his son Gary, now an investment banker.

While EastWest had some home runs, including Digital River Inc., it also invested in a series of now-failed entertainment-related startups. Genre media site Fandom Inc. was one; another was MyPotential.com, a Web site formed by the daughter of Adelson’s friend and motivational guru, Deepak Chopra.

Adelson, who originally invested $22 million in EastWest, took out bank loans to invest more. While his No. 2, Paul Nadel, and son Gary handled much of the investments, he would help out and utilize his celebrity contacts.

“I would stop by his home in Malibu and we would talk about the nuts and bolts of business,” said George Grayson, the co-founder of one of the investments, 7th Level. “He really was interested in what happened.”

The music stops

But by 2002, 7th Level, Fandom and MyPotential.com had gone out of business. Nadel left last year and now serves as a “partner emeritus,” while Gary Adelson moved onto L.A. investment bank Houlihan Lokey Howard & Zukin.

Another EastWest miss: e-mail marketing outfit Avalon Digital Marketing Systems Inc., which filed for Chapter 11 bankruptcy protection on Sept. 5, two months after an unsuccessful restructuring. EastWest had invested $3 million in the company over the past year.

Meanwhile, Wasserstein Adelson Ventures has suffered its own lumps. Several of its investments, including tech outfit Cognigine, have either been folded or sold at a loss.

Today, EastWest only employs one full-time venture capital executive out of an office in Santa Monica’s Water Garden complex, which is also home to one of Adelson’s charities.

As for the Wasserstein venture, Levene declined comment and calls to Wasserstein executives W. Townsend Ziebold and George Lauro were not returned.

Last week, Adelson won a 30-day extension to file all the details of his assets and debts. Levene expects that a plan of reorganization can be filed shortly, but it will be contingent on a workout with UnionBanCal unit Union Bank, which wants to sell Aspen home immediately.

“I think we can work something out with the other creditors. They aren’t a problem for us,” said Levene.

Union Bank’s attorney, Kalman Steinberg, declined comment.

P.S.: Fortune would follow up five weeks later with its own 3,108-word version of the Adelson story at http://www.fortune.com/fortune/articles/0,15114,526320,00.html. So did Daily News’ Rush & Molloy at http://216.239.53.104/search?q=cache:o5ybIzadohwJ:www.nydailynews.com/front/story/122488p-110055c.html+rush+%26+molloy+and+merv+adelson&hl=en&ie=UTF-8.