An $8.5 million offer to buy Sengstacke Enterprises, the financially struggling owner of the Chicago Defender and three other African-American newspapers, was rescued from oblivion Wednesday.
The deal had been close to falling apart late Monday when the acquirer, Real Times Inc., rejected two conditions placed on the deal by the Sengstacke board of directors.
But Wednesday morning, the parties hashed out their differences just ahead of a scheduled hearing before Cook County Circuit Court Judge Bernetta Bush, who is overseeing the company’s probate case.
After reviewing the deal, she said the parties can move forward, but she will continue to monitor its progress.
“Any final distribution or decision may be subject to an order of the court,” she said.
If the deal goes through–and there are still significant potential obstacles–it will close a painful chapter in the company’s history, a chapter that opened in 1997 after the death of John Sengstacke, the company’s longtime leader.
The future of the family-owned business has been in doubt because of an estate tax bill in the neighborhood of $3 million, which has attracted bidders for the firm. Family members, who have struggled with a desire to keep the business in the family and a need to meet the tax bill, have resisted earlier outside offers.
The current offer has been made by Real Times, a Chicago firm headed by Thomas Picou, a member of the Sengstacke family, a former executive of its businesses and a current consultant to its newspaper operations.
“By my buying it, it would remain in the family,” Picou, a nephew of the late John Sengstacke, said earlier this week.
Also involved is Kurt Cherry, a former investment banker who made an earlier run at acquiring Sengstacke Enterprises. He is expected to join Real Times as chief financial officer after the deal closes, which is expected in July.
The deal calls for an upfront payment of $3 million, a promissory note of $3 million, to be paid off at 12.5 percent over five years, and a bonus interest payment due in five years of $2.5 million or 5 percent of the fair market value of the company, whichever is greater. This will give Real Times ownership of 91 percent of the company, which also publishes the Michigan Chronicle in Detroit, the New Pittsburgh Courier and the Tri-State Defender in Memphis.
John Sengstacke’s son, Robert, will retain his stake of nearly 9 percent.
To make the deal work, attorneys for Sengstacke’s estate need to persuade the Internal Revenue Service to lower the estate tax bill.
“They will try to go in and explain to the IRS that the company has been sold for a lower value than was arrived at during an estate appraisal three years ago,” said attorney Anthony Licata, a partner with Shefsky & Froelich who is representing Sengstacke Enterprises.
“If the IRS won’t cooperate, there is a serious risk the deal could collapse,” he said. “This transaction represents the best hope for the IRS to get paid.”
John Sengstacke had willed a controlling 70 percent interest in the company in trust to his son Robert’s six children, and some of them are not completely sold on this deal.
“It’s not exactly what we were hoping for,” said Myiti Sengstacke, the eldest of Robert’s children. “My grandfather’s intention was that it continue with his grandchildren.”
Picou has said both Robert and Myiti would have the option to be part of the new organization.
After the court hearing Wednesday, Cherry expressed optimism the deal would get done. “I think there is good faith on both sides to get it done,” he said.
