Private concern Brooke Partners completes $1.1 billion revamping.

Private concern Brooke Partners completes $1.1 billion revamping

Brooke Partners L.P., a low-profile Beverly Hills private partnership formed by now-defunct brokerage house Drexel Burnham Lambert, last week completed a $1.1 billion (in assets) restructuring in which it will ultimately become a publicly traded company.

Though little known, Brooke Partners controls 40 percent of the stock of Western Union Corp., the New Jersey-based telegraph company; 70 percent of MAI Systems Corp. (formerly MAI Basic Four), a Tustin-based computer company; 100 percent of Durham, N.C.-based Liggett Group Inc., the nation's sixth-largest tobacco company; 100 percent of Durham, N.C.-based Impel Corp., a leading manufacturer and distributor of athletic collectible cards, and control of other, smaller entities.

The combined companies controlled by Brooke Partners had revenues of $1.13 billion in the year ended March 31, 1990. For the six months ended Sept. 30, the combined companies posted a loss of $13.4 million on revenues of $526 million.

Last week, in a deal structured by the Westwood offices of investment banker Oppenheimer & Co., Brooke Partners merged itself into Brooke Group Ltd., a New York-based company traded on the New York Stock Exchange. Bennett LeBow is the chairman and president of Brooke Group, and Richard Ressler is vice chairman.

Ressler, 32, was formerly in the mergers and acquisitions department of Drexel Burnham in Beverly Hills.

The private Brooke Partners owns 84 percent of the stock in publicly traded Brooke Group, with the remaining 16 percent traded on the Big Board.

Investment bankers Thomas Weinberger and Roger Kahn of Oppenheimer were hired by the independent board directors of Brooke Group, the public company, to represent the interests of the 16 percent minority, public shareholders.

In the complex deal, the publicly traded Brooke Group assumed $300 million of junk debt owed to creditors by the private Brooke Partners. The $300 million of junk bonds was underwritten by Drexel Burnham Lambert in 1987, and the bonds financed in part the Brooke Partners' acquisitions of Western Union and Liggett.

To compensate the public shareholders for assuming the debt, the Oppenheimer bankers created a tradeable security called a "contingent value right."

After May 15, 1991, each contingent value right will be exchangeable for $12 plus 15 percent of $12 annually compounded - a deal designed to protect the public shareholders against downside risk, said Weinberger of Oppenheimer.

"We were hired by an independent committee of the board of Brooke Group to protect the interest of shareholders, and this transaction protects the shareholders against any downside risk, and includes them in any upside movement," said Weinberger. "The public shareholders will have the right to convert their shares and effectively earn a 15 percent annual return."

However, after announcement of the deal last week, Brooke Group stock sank from $12 a share to $8.125 a share, on trading volume about three times normal. Said Ressler, "The deal is just not understood by the traders. We worked very hard, we bent over backward to protect the rights of shareholders. Those buying at $8 a share will have the right to convert their shares in 1993, for $12 and the 15 percent interest annually compounded."

In the deal, Brooke Partners, which is based at 9595 Wilshire Blvd. in Beverly Hills, will have its common stock in the publicly traded Brooke Group converted into preferred stock, which cannot be sold until March 1991. The stock ultimately will convert back into common stock.

The Brooke Partner debt assumed by Brooke Group has certain covenants which may limit the company from paying dividends, according to the company's recent 10q, a quarterly financial statement filed with the Securities and Exchange Commission.

Brooke Group said, however, it believes it can satisfy debt obligations, expand business and pay dividends.

Oppenheimer banker Weinberger said the Brooke restructuring is "a 1990s deal, not a 1980s deal."

He said, "We are creating a publicly traded corporation, with everything disclosed and everything above board. The idea now is to pay down debt, and create a company that will move ahead in this decade."

PHOTO : Thomas Weinberger, right, with Oppenheimer Co. partner Roger Kahn