Steve Forbes, heir to one of the world’s most famous publishing families and twice an unsuccessful US presidential candidate, is not known for his passion. But in a heated private meeting in Hong Kong last October, he was incensed.
A month earlier the Forbes family had sold its media business to Integrated Whale Media Investments, a group of Asian investors, in a deal valuing the company at $475 million. By the time of the October meeting, however, the buyers had failed to make an interest payment of roughly $40,000.
The missed payment was “a disrespect to the agreement, a disrespect to my family and a disrespect to me personally”, Forbes told Sammy Wong, Integrated Whale’s representative, according to a lawsuit filed in Delaware by the Forbes family. “It was only a small amount, but the family got very upset,” a person familiar with the situation said.
The messy US legal dispute now clouds the future of Forbes magazine, the self-proclaimed “capitalist tool” that has been a champion of free markets for nearly a century. It has also shed light on the Forbes family, who built their flagship publication into an arbiter for others’ fortunes, but kept their own wealth a matter of conjecture.
The family has long traded on its reputation for financial expertise. At the height of the financial crisis, Forbes appeared on the cover of his own magazine to try to calm readers’ nerves; his nephew, Miguel, sensed a “general loss of faith” in traditional fund managers and launched the Forbes Family Trust to advise the super-wealthy. Now the family’s complex dealings with Integrated Whale has placed its reputation — the underpinning for the Forbes brand — on the line.
Integrated Whale said in a statement that the Forbes family’s complaint was “completely without merit”. Neither side agreed to comment on the record for this article, and the filed lawsuit is heavily redacted. However, the Financial Times estimates that $110 million — in loans and money held in escrow — could be at stake. In addition, the suit could hinder ambitious plans to build Forbes-branded financial centres worldwide.
For the Forbes family, selling their flagship magazine appears to have been a necessity. Elevation Partners, a private equity firm affiliated with Bono, U2’s singer, bought a minority stake in Forbes Media in 2006, and had an option to sell it back to the Forbes magazine for the same price a decade later.
To avoid having to buy back the stake, the Forbes family spent nearly a year searching for a new investor. Germany’s Axel Springer and China’s Fosun International, who were already licensing its brand, both balked at the $400 million-plus pricetag for a business whose last earnings before interest, tax, depreciation and amortisation were about $20 million.
Forbes’ print sales, like those of other publications, had plummeted, but the magazine portrayed itself to would-be investors as an online innovator. Under Lewis DVorkin, its maverick chief product officer, it used more than 1,000 amateur contributors — which were paid based on the popularity of their articles — and allowed advertisers to publish stories directly on to the Forbes site.
“Forbes had a double image. It was a company that had been a self-promoting digital pioneer [but] at the same time, they’d put their brand into question,” says Ken Doctor, a media analyst.
The July 2014 acquisition by Integrated Whale appeared to answer the doubters. There were hints that Integrated Whale could expand the Forbes brand into Asian financial services and property. “Our new partners respect the Forbes mission, and our deep belief in entrepreneurial capitalism and free markets,” said Forbes, who agreed to stay on as chairman. In Asia, said Forbes’ chief executive Mike Perlis, “Steve is revered, frankly.”
But the choice of Integrated Whale could prove costly. The group’s controlling shareholder, Hong Kong financier Yam Tak Cheung, enjoys close ties to a casino owner known for lending to volatile small-cap firms in Hong Kong.
Already the Delaware complaint has revealed the unusual fact that the Forbes family lent tens of millions of dollars to Yam to finance part of the acquisition. Such vendor financing — where the seller lends money to the buyer to finance the acquisition — is uncommon but not unprecedented. “It is done rarely, when the vendor is desperate to get the business away, and when the buyer doesn’t have enough money,” says one investment banker not involved in the deal.
The Forbes dispute centres around the loan, made in three tranches. Forbes claims Integrated Whale must pay back the sum early because it missed its first, roughly $40,000 interest payment only 18 days after the sale closed.
Integrated Whale initially wanted to buy 80 per cent of Forbes Media, a person close to the deal said. But Forbes insisted the British Virgin Islands-registered investment vehicle take the whole company. Eventually the sides agreed that Integrated Whale would acquire 80 per cent in cash, plus an additional 15 per cent in a seller-financed structure.
A person familiar with the deal says Integrated Whale requested that the Forbes family retain a 5 per cent stake — thereby preserving the brand’s prestige. Integrated Whale’s backers insist they could have bought the full 95 per cent stake in cash. “They don’t want people to think they don’t have the money and need Forbes’ money to buy Forbes,” the source says. Integrated Whale did make subsequent interest payments.
That leads to a conundrum: if Integrated Whale had sufficient cash, why did it miss the first interest payment, making it liable for the immediate repayment of the entire loan? The Forbes family says, in its suit, that no coherent explanation was initially offered.
Two days after Forbes’ fraught meeting with Wong in Hong Kong, the parties gathered again at the Forbes Global CEO Conference in Singapore, a glitzy affair where the guests of honour were Singapore’s prime minister Lee Hsien Loong and Dhanin Chearavanont, who tops Forbes’ list of Thailand’s 50 richest people. Hanergy, then a high-flying Chinese solar firm, was one of the 12 corporate sponsors.
Also in attendance was casino owner Pollyanna Chu and her son, Kingston Chu. Chu’s firm, Kingston Financial, helps companies issue shares in Hong Kong to pay back loans. Kingston Securities, owned by Chu and her sister, is an active player in the financial centre’s small-cap stocks, and has been involved with a number of listed companies linked to Hanergy’s now-suspended listed unit, as well as in a series of complex small-cap deals characterised by rapid price changes, a small number of controlling shareholders and undeclared cross holdings.
Yam did not respond to questions about his business dealings with Kingston, but they appear to extend over several years. In an unrelated loan dispute heard in the Hong Kong courts in 2009-10, Yam attempted to refer a borrower to Kingston Finance after the borrower had been unable to pay loans to Integrated Capital (Asia), of which Yam is director.
The question many observers are asking is why Forbes would sell its flagship product to a financier at the opaque end of Hong Kong’s market? And why would it decide to lend money to do so, despite the apparent reluctance of a partner who is more commonly a lender than a borrower?
Yet the complexities of Yam’s business dealings should perhaps not have come as a surprise to the Forbes family. The Delaware lawsuit states that the family had previously dealt with Wong, Yam’s right-hand man. It says a company associated with Wong’s G2 Whale Capital Group had licensed Forbes’ name since 2010, but had fallen into arrears on the licensing payments by 2014. Forbes did not reveal this prior association at the time of the sale.
This means that at the time Forbes was trumpeting the sale, his family was already owed overdue licensing payments by parties associated with Integrated Whale.
Even as the dispute unfolded, plans for Forbes’ future with its new partners continued to take shape. In September 2015, developers made progress on a stalled plan to build the first Forbes Media Tower in the Philippines — the biggest effort yet to spread the brand beyond media. In November Forbes dipped its toe into telecoms, launching a low-cost sim card for travellers.
Media reports have speculated that the Forbes family is trying to use this dispute to buy back its media group: if Integrated Whale and Forbes do not reach an agreement, a British Virgin Islands court could force a liquidation of the Hong Kong investors’ stake.
It is unclear whether the Forbes family, which has been selling off prized assets for years, could finance such an investment.
However, people close to Forbes say taking control of the group is not their goal. What they want is their money — and they have made it clear they will go out of their way to get it back. But even if they do force the sale, the family may not be able to regain control of the Forbes name.
Documents filed to the Hong Kong stock exchange say the global licence to use the Forbes brand in property projects is owned by a BVI-registered company called G2 Whale Real Estate Development Limited. The owners of G2 Whale Real Estate Development are not listed, but another filing mentions G2 Whale Capital Group, whose website lists Wong as a co-founder. If these filings are correct, the Forbes family has ceded a valuable trademark to parties associated with those with whom they are now in a legal dispute.
The name G2 appears to derive from G2 Investment Group, the New York firm that had held a licence to use the Forbes name for financial products between 2010 and 2014, and which also entered a joint venture with Whale Capital in 2010.
G2 put together provisional plans for Forbes-branded buildings in Manila, Sao Paulo, Bangkok and elsewhere costing $830 million. But a spokesman says it was not involved in G2 Whale Real Estate Development, or in other ventures with Wong. “G2 has no such partnership and has not authorised the use of its name in connection with G2 Whale or any similar entity,” the spokesman says.
Meanwhile, the Forbes magazine faces competition not just from rivals such as Fortune and Bloomberg BusinessWeek, but also Business Insider, the finance website recently acquired by Axel Springer at a valuation of $390 million.
And yet the power of Forbes’ World’s Billionaires List endures: in 2014, Prince Alwaleed bin Talal, a Saudi investor, sued after his assets were valued at some $9.6 billion below his own calculations (the case was settled); this year, Donald Trump called the magazine “bankrupt” for estimating his wealth at a mere $4.5 billion — $5.5 billion less than he claims.
For the Forbes family and Integrated Whale, working out their messy legal dispute may prove the easy part.
— Financial Times
