Speaker 1: Pushkin. Andy Mitchell could be called a doctor for business,
Speaker 1: but he's not the kind of doctor who does annual
Speaker 1: wellness checkups. Nope. Andy Mitchell's specialty is more alike emergency
Speaker 1: triage for very, very sick companies. You know they're bad
Speaker 1: off because of what people tend to call them at
Speaker 1: this stage, distressed Assets. Andy's firm, Lantern Asset Management, buys
Speaker 1: up businesses in immediate need of cash and willing to
Speaker 1: sell at bargain basement prices. I wanted to talk to
Speaker 1: Andy Mitchell because I'm pretty sure someone like him will
Speaker 1: be involved in some future stage of the company at
Speaker 1: the center of my next book, The now extremely Distressed
Speaker 1: Crypto Exchange FTX. Welcome to on background from Against the Rules.
Speaker 1: I'm Michael Lewis. It's possible that no one will be
Speaker 1: able or willing to revive FTX, which is now in bankruptcy,
Speaker 1: but I figured Andy Mitchell could tell me how a
Speaker 1: rehabilitation scenario might go down if a willing buyer came along.
Speaker 1: One thing I'm finding out about these background interviews, I
Speaker 1: just get interested in them in their own right. Apart
Speaker 1: from FTX, Andy's world intersects with huge stories in the news,
Speaker 1: but also junk food you probably ate as a kid.
Speaker 1: When something goes belly up, people seek him out. I
Speaker 1: asked him how he knows when to get involved.
Speaker 2: I like to say, look, you know, we identify companies
Speaker 2: that have a reason to exist, and the reason they're
Speaker 2: not performing is something you can identify that that can
Speaker 2: be fixed and understood.
Speaker 1: So you find the sick and the wounded and you
Speaker 1: try to fix them. But not all the sick in
Speaker 1: the wounded, just the sick in the wounded that they
Speaker 1: have hope.
Speaker 2: I said, I do a lot of gap analysis, right
Speaker 2: what should be happening and what is happening? And can
Speaker 2: you tafy the gap and a type of understanding of
Speaker 2: you know, and as you know, a big part of
Speaker 2: restructuring is do people really understand where they are and
Speaker 2: where they're going? Because denial is not just a river
Speaker 2: in Egypt r. It's the easiest thing to do as
Speaker 2: a business leaders to say no, no, no, it's it's
Speaker 2: it's the economy, it's COVID. I mean, it's it's the
Speaker 2: first thing that investors don't like when management just blames
Speaker 2: every external factor they can think of, and they so
Speaker 2: well do you really understand why it is you are
Speaker 2: not performing and can you deal with it.
Speaker 1: And do the things that you buy? Are they invariably
Speaker 1: in bankruptcy or are they sometimes not that far gone?
Speaker 2: So a lot of the companies that we get involved
Speaker 2: with are definitely troubled. The legal term bankruptcy judges like
Speaker 2: to use is you know you've entered a zone of insolvency.
Speaker 3: Right, So if.
Speaker 2: You're in a situation where you're unable to maintain a
Speaker 2: status quo or to realize your business plan, that's that's
Speaker 2: usually when we come in. And honestly, the one defining
Speaker 2: thing that brings us in most of time is the
Speaker 2: first thing I ever learned out of business school.
Speaker 3: Cash is king.
Speaker 2: So when liquidity becomes tight, that's usually when people start
Speaker 2: having to look for different solutions. If you have a
Speaker 2: lot of cash, it's amazing how long you can languish
Speaker 2: in non performance land. If you've got time and liquidity,
Speaker 2: you can work through a lot of things. But as
Speaker 2: soon as people start cutting off that lifeblood of any company,
Speaker 2: which is the cash that needs to pay its bills,
Speaker 2: they come to you really enter a different stage. And
Speaker 2: that's unfortunately, most time we get involved, whether it's in
Speaker 2: quart or out of court, it's the time at which
Speaker 2: the company realizes that in the not too distant future
Speaker 2: they're not going to be able to make their payments
Speaker 2: as they.
Speaker 1: Come do what would have been the first case? And
Speaker 1: what's the first time you saw something you said, this
Speaker 1: sick and wounded business can be repaired, and I'm going
Speaker 1: to buy.
Speaker 3: It, you know. I actually so.
Speaker 2: I was a company called Interstate Bakeries, if you remember,
Speaker 2: they made wonderbread and Twinkies and whatnot.
Speaker 3: And right around the.
Speaker 2: Time that Michelle Obama correctly came out and said, hey,
Speaker 2: we need to worry about childhood obesity, they had three
Speaker 2: billion dollars of sales, but really started to have a
Speaker 2: top line issue.
Speaker 1: What does that mean? A top line issue?
Speaker 2: I remember I was sitting in the room the first
Speaker 2: time I met with the CEO, and of course there's
Speaker 2: a plate of Twinkies in the middle room, and he said,
Speaker 2: you want a Twinkie? I said, no, absolutely not. He goes,
Speaker 2: that's the problem, not being twinkies. So it really, you know,
Speaker 2: it was fundamental. Now, the real problem with Interstate Bakeries
Speaker 2: was actually, if you look behind the scene, they were
Speaker 2: making three billion dollars, and yet they were losing one
Speaker 2: hundred million dollars.
Speaker 3: In cash flow.
Speaker 2: And it's because it cost them so much to distribute
Speaker 2: their product. It was a highly unionized workforce, and the
Speaker 2: problem was is that they had grown through acquisitions, so
Speaker 2: they'd acquired something like fifty bakeries in the United States.
Speaker 2: But each time they acquired a bankruptcy, they simply adopted
Speaker 2: or absorbed the existing union contract. So when I sat
Speaker 2: down with the teamsters, even they were troubled. They said,
Speaker 2: you know, Andy, here's the problem. We have fifty different
Speaker 2: contracts in this company, and so if you were draw
Speaker 2: a line on where we want to settle, you've got
Speaker 2: guys that have a better deal, guys that have a
Speaker 2: worse deal. So it's really difficult to herd cats here.
Speaker 2: So you know that that company had.
Speaker 3: A top line problem that could be managed.
Speaker 2: It had a cost structure issue that again you had
Speaker 2: to work through the unions and whatnot, but could be
Speaker 2: managed because when you looked at their competitors, you know
Speaker 2: they were doing ten fifteen percent margins and here we
Speaker 2: were at negative margins.
Speaker 1: There's something disturbing about the idea of every time someone
Speaker 1: eats a twinkie. The company that makes it is losing
Speaker 1: money too, Like is that good for anybody? Right? I mean,
Speaker 1: they're not even making a profit off the twinkies. They're
Speaker 1: sort of subsidizing the twinkies. That's news to me. So
Speaker 1: you're so this is the first problem you deal with
Speaker 1: on your own.
Speaker 2: Well, this is this is the first major target, you
Speaker 2: know that came up. Now, that probably was a bad
Speaker 2: one to bring up, because unfortunately it went through not
Speaker 2: only a chapter eleven, but it went through a chapter
Speaker 2: twenty two, which is the joking term in the industry
Speaker 2: for a second bankruptcy, and then finally it liquidated.
Speaker 1: So in the end it didn't end up working.
Speaker 3: It did not end up working.
Speaker 2: The guys that eventually bought it basically did what had
Speaker 2: to be done, which is they shut the whole thing down,
Speaker 2: tore up all the union agreements, and then once everything
Speaker 2: was still they took the brands, restarted it and made
Speaker 2: a huge profit. But unfortunately it took using the bankruptcy
Speaker 2: code to jettison all those union agreements and everything else,
Speaker 2: because it just no matter how deep. And that's a
Speaker 2: whole different series, is you know, dealing with collective bargaining
Speaker 2: and how to make it a win win for everybody.
Speaker 1: So that wasn't But that wasn't you. You didn't end
Speaker 1: up buying the Twinkie company.
Speaker 3: No, I didn't.
Speaker 1: Hold that thought. After a short break, we're going to
Speaker 1: hear all about a distressed asset Andy did buy, and
Speaker 1: it's distress which was considerable. We'll be right back. I'm
Speaker 1: back with Andy Mitchell, managing director of Lantern Asset Management.
Speaker 1: In this next part, I asked him about his most
Speaker 1: famously distressed asset. I want to guess what that was.
Speaker 1: Here's a clip from CBS This Morning.
Speaker 2: In twenty seventeen, New York Times reporters Jody Kantor and
Speaker 2: Megan Twey uncovered stories of Weinstein's alleged sexual harassment, igniting
Speaker 2: the me too movement.
Speaker 1: Let's talk about your experience buying Harvey Weinstein's company. So
Speaker 1: tell me how you stumble into that in the first place.
Speaker 2: Well, in that one, you had a pret identifiable problem, right,
Speaker 2: which is had a management issue. Jokingly say, well, glad
Speaker 2: you get into Weinstein. It's well, they had a management problem.
Speaker 1: So he gets charged with sexual assault. And then what happens.
Speaker 2: When the New York Times dropped their bombshell story right,
Speaker 2: it put in place a number of events that quickly
Speaker 2: escalated beyond control. Now, if you look at the Weinstein Company,
Speaker 2: it had a lot of problems before the New York
Speaker 2: Times did that story. This liquidity strained, It had a
Speaker 2: serial borrower of money, and even though it had a
Speaker 2: lot of successful movies, the US successful movies were bringing
Speaker 2: it down. I'd be like talking about a mutual fund saying, well,
Speaker 2: they have ten great stocks.
Speaker 3: And like, yeah, but they have fifty bad stocks.
Speaker 2: So unfortunately, you don't get to just talk about the
Speaker 2: ten positive ones, except maybe in Hollywood.
Speaker 1: So they were were they losing money?
Speaker 3: Oh?
Speaker 2: They were already in solvment before the situation when Harvey
Speaker 2: had erupted.
Speaker 1: I didn't realize that, Okay.
Speaker 2: The Weinstein Company, they're good at making movies, but definitely
Speaker 2: not great at contracts and accounting and whatnot. A number
Speaker 2: of different things were in disarray. But ultimately what got
Speaker 2: me to at a table was once the story broke,
Speaker 2: all the creditors started panicking because if Harvey was going
Speaker 2: to be removed from the company, what do you hate
Speaker 2: the man or like the man or love his movies.
Speaker 2: He was seen as the creative energy behind the entire thing,
Speaker 2: and without him, the belief was that there was no
Speaker 2: Weinstein Company, and so credits started to pull back, not
Speaker 2: to mention with what was going going on in terms
Speaker 2: of the negative reaction to Me Too movement, this global movement,
Speaker 2: it also became toxic. Right first there was a business problem.
Speaker 2: Then it became people didn't want to be associated with it.
Speaker 2: They didn't want to carry the movies and television shows
Speaker 2: on TV. They were worried about people boycotting it.
Speaker 1: And where are you physically when this happens? Where are
Speaker 1: you living?
Speaker 2: So I'm living in Dallas, Texas, right, the last place
Speaker 2: you'd expect to find somebody to go to Hollywood and invest.
Speaker 3: We got a.
Speaker 2: Call from actually one of our limited partners called up
Speaker 2: and said, Hey, you know a partner of ours as
Speaker 2: a movie that's going to get caught up in this.
Speaker 3: How do we get it out of this process? Oh?
Speaker 1: That was your way in. Someone called and asked how
Speaker 1: you could extract a single movie from the Weinstein Company.
Speaker 1: What movie was it?
Speaker 2: It was called War with Grandpa with Robert de Niro,
Speaker 2: So it had not been released yet, and you know,
Speaker 2: it's just the fear of the investor was, well, what
Speaker 2: happens if we get stuck into s bankruptcy and the
Speaker 2: movie doesn't get released and you know you've spent all
Speaker 2: this money making this movie, right, You've got all this
Speaker 2: money on the table. In fact, there was six movies
Speaker 2: stuck during the period that we bought.
Speaker 3: Another.
Speaker 2: One's called Upside, great movie, strangely about a turnaround guy.
Speaker 2: Brian Cranston plays a turnaround advisor. It's about a quadr logic.
Speaker 2: So this was a movie that wasn't yet done, but
Speaker 2: they had put considerable money into it. And even though
Speaker 2: you had Kevin Hart and Nicole Kidman a great cast,
Speaker 2: it became the cloud of uncertainty over the entire Weinstein,
Speaker 2: which is what if America boycotts this? So the creditors,
Speaker 2: everybody was in this perpetual state of fear. And so
Speaker 2: we came in and ended up meeting with a couple
Speaker 2: of parties that were said, look, this is a good business.
Speaker 2: It just needs a change of management and we don't
Speaker 2: deserve to lose years and years of work as a
Speaker 2: result of what Harvey did.
Speaker 3: So there was a process can we do it outside
Speaker 3: of court?
Speaker 1: I mean, does it have to be thrown into bankruptcy?
Speaker 3: Yeah? Does it? Does it have to go into bankruptcy?
Speaker 3: Was the kind of question de jure, and.
Speaker 2: Most people would rather do a deal outside of bankruptcy.
Speaker 2: What they don't realize is it's actually a very highly
Speaker 2: effective tool in order to help the company get back
Speaker 2: on its feet. And it's to me, it's the entire
Speaker 2: reason our bankruptcy code exists is that a company that
Speaker 2: continues to go and concern is most likely more valuable
Speaker 2: than a company that is liquidated and resolved.
Speaker 1: Which, so what did you do with Harvey Weinstein's business?
Speaker 2: So I took the position early on with a number
Speaker 2: of the members of the board and the advisor that
Speaker 2: there was no way to buy the company outside of bankruptcy.
Speaker 2: And the main reason was is when you buy a company,
Speaker 2: it's sometime inherits all of those claims and all those
Speaker 2: legacy aliabilities that exist at that time, and people were
Speaker 2: still trying to figure out daily, you know, what the
Speaker 2: liabilities were, who who was to blame, how much what
Speaker 2: Harvey did infiltrated it, whether or not there was hr claims,
Speaker 2: whether or not there was it was an internal and
Speaker 2: if you.
Speaker 1: And if you bought, if you bought it before bankruptcy,
Speaker 1: you'd inherit all those problems. And if anybody, anybody want
Speaker 1: to sue for anything Harvey Weinstein ever did, you'd be liable.
Speaker 2: That. That was my position, because every single day at
Speaker 2: that time, there was another claim popping up against the company,
Speaker 2: either nonpayment or the victims, and so there it was
Speaker 2: just an absolute It's like hitting a bee's nest. It's
Speaker 2: a swarm around this company of people making claims against it.
Speaker 3: And so to me it was a classic.
Speaker 2: It needed to go into bankruptcy just to stop the
Speaker 2: clock for a moment, take a deep breath, assess what's there,
Speaker 2: and then reorganize the company.
Speaker 1: What did you see in this company that was valuable?
Speaker 3: The library?
Speaker 2: I mean it was two hundred and ninety nine movies
Speaker 2: that America loved and actually I loved worldwide.
Speaker 3: Right. You had the Quentin Tarantino collection.
Speaker 2: You had movies like Kings Speech, you had The Butler,
Speaker 2: you had Silver Linings playbook, you had Project Runway television show,
Speaker 2: you had Yellowstone, and Hollywood took this position of nobody's
Speaker 2: going to watch this again because of what Harvey did
Speaker 2: everybody's going to boycott it across America. And this is
Speaker 2: this is tainted goods. What they didn't realize is people
Speaker 2: in Kansas and Houston and Dallas, they didn't even know
Speaker 2: who Harvey Weinstein was to begin with. You know, as
Speaker 2: I said, you know, usually when the credits are playing
Speaker 2: in the beginning movie, most Americans are still getting their
Speaker 2: popcorn or getting their seat. The concept to me that
Speaker 2: people weren't going to watch them, you know, weren't going
Speaker 2: to watch Paddington Bear for example, we about Paddington Bear,
Speaker 2: that my daughter wasn't gonna watch Paddington Or because of
Speaker 2: Harvey Weinstein. It was just ridiculous. I said, you know,
Speaker 2: and you could, and I knew in bankruptcy you could
Speaker 2: buy it free and clear of all the other claims,
Speaker 2: and you could separate the good from the bad, which
Speaker 2: is what bankruptcy at its heart it does.
Speaker 3: To maximize value.
Speaker 2: Is it lets somebody buy it without the worrying about
Speaker 2: well what about so and so, you know, gives them
Speaker 2: a format through the bankruptcy court in order to resolve
Speaker 2: their claims and disputes, and allows the company to go
Speaker 2: and survive.
Speaker 3: So I said, if we can just.
Speaker 2: Get the library out of this alone, there'll be sufficient value.
Speaker 1: Well, so tell me what happened in the bankruptcy, Like,
Speaker 1: how come there aren't dozens of people trying to buy
Speaker 1: this library? And how can you get it at a
Speaker 1: decent price.
Speaker 2: In March of twenty eighteen, we entered a bankruptcy with
Speaker 2: the company. Said here the company's filing bankruptcy, but don't worry.
Speaker 2: We already have a white night. They're going to acquire
Speaker 2: the asset. I set up a company called Land Entertainment
Speaker 2: as the vehicle to come in and buy it. And
Speaker 2: the number that people love the quote is, well, what
Speaker 2: could you read in the bankruptcy court? So the bankruptcy
Speaker 2: court said I bought was a stocking orse for two
Speaker 2: hundred and eighty nine million of cash. What people always
Speaker 2: forget is it's not just the cash you pay, it's
Speaker 2: also the liabilities you assume that matter. So, with all
Speaker 2: the claims that we assumed and everything else were probably
Speaker 2: an area of four un million.
Speaker 1: Did you assume any of the claims that might have
Speaker 1: been filed against Harvey. No, I'm just curious what claims
Speaker 1: did you assume?
Speaker 3: So what we were able to do is and it
Speaker 3: is all very public.
Speaker 2: So we went in and said, look, we're prepared to
Speaker 2: buy all the assets for X, and here are the
Speaker 2: claims that were prepared to assume. And there are certain
Speaker 2: claims that if you don't assume, you're not going to
Speaker 2: get approved.
Speaker 3: Is a stocking horse. So a stocking horse by model
Speaker 3: is to provide a floor bid.
Speaker 1: You're the first bid in an auction.
Speaker 2: You can I can always bid more, but you're not
Speaker 2: supposed to bid less as a stocking horse. So you
Speaker 2: come in with a floor bid and you say here's
Speaker 2: what I'm willing to assume, here's what I'm willing to pay,
Speaker 2: and that bid gets put together as an order and
Speaker 2: then gets put out there for all the other bidders.
Speaker 2: So I came out in March as a stocking horse
Speaker 2: with the company to say, hey, it's not going to
Speaker 2: be obliterated from the earth. There's a buyer here, they're
Speaker 2: going to hire the employees and there's going to be
Speaker 2: a plan. And then we entered the auction. What I
Speaker 2: didn't expect and I may hold a record, I don't know.
Speaker 2: You have to check with your bankruptcy historians. Ninety six
Speaker 2: parties objected to my bid as stocking horse. Why you know,
Speaker 2: when Meryl Street files in the chection to your bid,
Speaker 2: it tends to make news.
Speaker 3: Right.
Speaker 2: A number of people objected, saying, well, you're onored. He
Speaker 2: hasn't said what he's going to do with my claim.
Speaker 2: He hasn't said that he's going to assume my claim.
Speaker 3: I don't think that he.
Speaker 2: Has a right to buy the movie without so all
Speaker 2: those types of objections, right.
Speaker 1: Yeah, So Meryl's in a movie and she's got a
Speaker 1: piece of the movie, and she's still not seeing her cash.
Speaker 2: And somebody told her, hey, you know what, it's going
Speaker 2: through a bankruptcy. Somebody's buying it. If you want to
Speaker 2: get paid or you want to make a claim, now's
Speaker 2: the time. So there was a bit of a pileon
Speaker 2: and a lot of it was because the records were
Speaker 2: so bad that they didn't even know and to be
Speaker 2: honest with nobody had filed bankruptcy in this much of disarray.
Speaker 2: I mean, Weinstein had talent, they had paid in five years,
Speaker 2: but it was unclear about well did he just give
Speaker 2: him another movie?
Speaker 3: What did he do?
Speaker 2: Was there some other form of payment? So it was
Speaker 2: there was a lot of noise around the case that
Speaker 2: got debated in a bankruptcy court about who had a claim,
Speaker 2: what the amount their claim was, and whatnot.
Speaker 1: You're getting an education in Hollywood, yes, And what are
Speaker 1: your takeaways as someone who's a complete outsider walking into
Speaker 1: this place? What strikes you? How's it different than you
Speaker 1: might have expected.
Speaker 2: When people are losing money, the first thing they do
Speaker 2: is look for somebody to blame other themselves, Right, whose
Speaker 2: fault is it? Why am I not getting paid? You
Speaker 2: know who is getting paid? And so people start getting
Speaker 2: very upset about where they are in line, what claim
Speaker 2: they have learned, the difference between what they think they
Speaker 2: have and what they actually have, and contractual rights. And
Speaker 2: in Hollywood it wasn't just money, it was personal, right,
Speaker 2: So you know, I say money is the root of
Speaker 2: all evil, But then you add fame and well, the
Speaker 2: rules don't apply to me.
Speaker 3: I'm so and so. And it was interesting to watch
Speaker 3: Judge Walwrath.
Speaker 2: Mary Walwrath was a presiding judge who's been on the
Speaker 2: bench in Delaware a long time, very experienced practitioner, and
Speaker 2: people would come in and they kind of had this
Speaker 2: do you know who.
Speaker 3: My client is? She?
Speaker 2: He was very like, I don't really care who your
Speaker 2: client is. The bankruptcy code doesn't have exceptions for you know,
Speaker 2: oscar winners.
Speaker 3: I'm sorry.
Speaker 2: So I think that was the most interesting thing and
Speaker 2: probably the biggest thing that we People like, what do
Speaker 2: you expect?
Speaker 3: I said, I don't know.
Speaker 2: I thought, this is going to buy a movie collection
Speaker 2: out of bankruptcy and do what I do.
Speaker 1: Right, right, So what happened in the auction? Did you
Speaker 1: we able to buy it at the floor price? Or
Speaker 1: were there are other people who came in a bit.
Speaker 2: I paid below what my opening price was, which if
Speaker 2: you'd asked me beforehand, I said, I've never seen that
Speaker 2: happen that you actually the stocking horse actually lowered the
Speaker 2: bid and still closed the deal. And there was a
Speaker 2: very tense point right before the auction because there was
Speaker 2: a number of guys bidding, but people were trying to
Speaker 2: come in and bid on individual films, right, somebody wanted
Speaker 2: to come in and buy Jangle and Chained and Glorious Bastards,
Speaker 2: but they didn't want the rest of it, and so
Speaker 2: they said, I'll give you X million for that, And
Speaker 2: if you're a practitioner on the other side, you'd love
Speaker 2: to just put together some of the parts until you
Speaker 2: hit a bigger number. Well, I took the approach of hey, man,
Speaker 2: I don't know what's good and bad, so if I
Speaker 2: don't get everything, I'm out, which upset a lot of people.
Speaker 3: Right, it was all or nothing.
Speaker 2: But then what I realized is they couldn't even tell
Speaker 2: me the status of certain payments.
Speaker 3: They couldn't tell me certain.
Speaker 2: Claims, and it became a lot more complicated, and they
Speaker 2: anticipated there became a real question about whether or not
Speaker 2: they could deliver the assets to me under the terms
Speaker 2: that I had set out.
Speaker 1: Sure because they claim because they claims more complicated than
Speaker 1: they kneed, right.
Speaker 2: I had I thought a real argument that they could
Speaker 2: not deliver the assets in the status that they said.
Speaker 2: So we basically said we wanted a massive purchase price reduction,
Speaker 2: and they threatened to sue.
Speaker 3: There was a lot of back.
Speaker 2: And forth in the press, and you know, people here,
Speaker 2: here's Wall Street coming in with this restructuring professional that's
Speaker 2: trying to But I was just being to me a
Speaker 2: good fiduciary of my of my responsibility of my bestors,
Speaker 2: which is, hey, if you can't deliver what I said,
Speaker 2: I'm not going to pay it. So I actually we
Speaker 2: mutually agreed to a purchase price reduction and I closed.
Speaker 1: What did you buy it for?
Speaker 3: I was like a twenty five million dollar reduction off
Speaker 3: the top.
Speaker 1: What's the most interesting claim you took on that you
Speaker 1: didn't expect to the you.
Speaker 2: Know, the biggest one that hung over in that case
Speaker 2: was what about the victims claim? What happened about the
Speaker 2: women that have claims? And who's going to pay that?
Speaker 2: I mean, you remember this time he had he was
Speaker 2: allegedly he was accused. There was no judgment against him.
Speaker 2: You know, it took three years for them to work
Speaker 2: it out with the court what they got. But you know,
Speaker 2: to me, that wasn't a position of a bidder to take.
Speaker 2: What was amazing is how many people said, no, no,
Speaker 2: you have some obligation to pay. But I said, look,
Speaker 2: I've got five kids, two of them are daughters.
Speaker 3: I'm not the one that's going to set it them
Speaker 3: ount on. How do you.
Speaker 2: What's proper for what allegedly happened? So we avoided it.
Speaker 2: But it was amazing how much it kind of came
Speaker 2: back to us time and time again of why aren't
Speaker 2: you assuming or paying something or doing something in that realm.
Speaker 2: And by the way, those victims had a voice in
Speaker 2: this case throughout the entire end. You know, the insurance
Speaker 2: plays into it. There's a number of things that come
Speaker 2: to bear when people are charging not just the manager,
Speaker 2: but with the company with the crime, which is again
Speaker 2: an FTX issue.
Speaker 1: Right right, So I want to talk about FTEX now,
Speaker 1: but before just just finish the Weinstein conversation. How's the
Speaker 1: company doing now? How did it work out?
Speaker 3: I'm happy to say after five years, six years.
Speaker 2: You know, once we got once Lan Entertainment got outside
Speaker 2: of bankruptcy, we hired a number of people back, We
Speaker 2: cut deals with the producers and distributors. We released The
Speaker 2: Upside at the beginning of twenty nineteen. Everybody thought the
Speaker 2: movie W'd be boycott did one hundred and thirty million worldwide,
Speaker 2: did very very well. Project Runway that everybody thought would
Speaker 2: kind of go down with the stream we work with
Speaker 2: Bravo or we launched the show. So the companies, what
Speaker 2: I think should have happened is once you got outside
Speaker 2: the storm, you know, these are great movies and great
Speaker 2: television shows and they went on to.
Speaker 3: Continue success. So we've been very happy. The company's doing well.
Speaker 1: On background. We'll be right back. I'm back with Andy Mitchell.
Speaker 1: We just heard how it was firm dealt with one
Speaker 1: majorly distressed asset, the Weinstein Company, which is fascinating, but
Speaker 1: it actually called him to get his take on what
Speaker 1: the future might hold for a FTX, another company that's
Speaker 1: sliding down the twin tracks of bankruptcy and criminal charges
Speaker 1: against its founder.
Speaker 2: FTX valuation is the biggest question, and I think that
Speaker 2: was the case beforehand. There's a lot of volatility in this,
Speaker 2: you know, I try to explain to my kids, what's
Speaker 2: what's crypto? What's this is a digital goal, right, We've
Speaker 2: created a digital currency that has value, and the value
Speaker 2: of that has swung wildly over time. So I think
Speaker 2: that was the first time you did the STX when
Speaker 2: it hit the wall, and where it is now is
Speaker 2: what is the underlying asset really worth to value? Movies
Speaker 2: pretty straightforward, especially if it released in the box office, right,
Speaker 2: did one hundred and fifty million. You can almost predict
Speaker 2: with science how well it's going to do on streaming
Speaker 2: platforms and whatnot. It just follows. There's a lot of
Speaker 2: data out there. Cryptocurrencies is a buch a much wider
Speaker 2: swing right, early adoptions and early products. I think the
Speaker 2: valuation is going to be the hardest part of this equation.
Speaker 1: I mean, he got he bought five billion dollars worth
Speaker 1: of venture capital assets, like companies, pieces of companies. What
Speaker 1: about valuing those?
Speaker 2: This one is going to be tough because it's, you know,
Speaker 2: there's a lot. When it's easy to value something, you
Speaker 2: can get a lot of experts in a room, and
Speaker 2: probably if there's ten of them, more.
Speaker 3: Than five are going to go to same direction. This one.
Speaker 2: You could have ten different views in the room with
Speaker 2: ten experts. From zero, it's worthless to you know, it's
Speaker 2: it's in hibernation.
Speaker 3: It's going to be worth a lot.
Speaker 2: It's just there's an uncertainty right now to those that believe,
Speaker 2: you know, those guys made good investments, they just got
Speaker 2: caught in a bad time and a run on a
Speaker 2: bank and it wasn't their fault, which I'm assuming is
Speaker 2: Sam's preferred story, is that if you guys hadn't ran
Speaker 2: and pulled all your deposits out, we wouldn't have been
Speaker 2: in this situation. I wouldn't have had to do what
Speaker 2: I did.
Speaker 1: Is the volatility of the assets or the difficulty of
Speaker 1: valuing the assets. Does that make this a prey special
Speaker 1: bankruptcy case or are there others like it?
Speaker 3: I think this will make it one of the most
Speaker 3: difficult cases.
Speaker 2: Is that the broader the range of views of value
Speaker 2: in a bankruptcy, the harder it is to get to
Speaker 2: a deal. I don't think there's anybody that could come
Speaker 2: by all these assets or would right now. Maybe the
Speaker 2: crypto you could put it in a bucket and say, well,
Speaker 2: look there's there's transparency in the exchange. We can look
Speaker 2: at it on other exchanges. But I think there's going
Speaker 2: to be such a huge range of values for whatever's
Speaker 2: left that that's going to create a problem.
Speaker 1: He had a made five hundred million dollar investment in
Speaker 1: an AI company called Anthropic half a billion dollars. If
Speaker 1: you're running the bankruptcy or you're running the company right now,
Speaker 1: how do you maximize the return on that? Like how
Speaker 1: do you go about unloading a venture capital portfolio?
Speaker 2: I would look to when Lehman went down right and
Speaker 2: you looked at Leman's assets, you had to start to
Speaker 2: put them in three buckets, right, assets that just sell
Speaker 2: them quick. They're melting ice cubes. They're going to go
Speaker 2: down in value. We just need to get them off
Speaker 2: our books. At the other end, you had assets that
Speaker 2: were so good and so readily available in pricing, there
Speaker 2: was a lot of demand for it. You just sold
Speaker 2: it and then they ended up with a whole lot
Speaker 2: of stuff in the middle, which is, okay, it's not
Speaker 2: a melting ice cube. There's not a ready market for it,
Speaker 2: so we shouldn't just assume it's garbage until we should
Speaker 2: take some time and figure it out. Now that's very
Speaker 2: expensive and bankruptcy, but that is a time when you've
Speaker 2: got to separate the assets from the liabilities and say, hey,
Speaker 2: can we at least put them into a.
Speaker 3: Trust or something. That was the problem to fall back
Speaker 3: to Winstein.
Speaker 2: If you were trying to sell it under those conditions,
Speaker 2: when everybody was, you know, pitchforks and torches, let's go
Speaker 2: burn everything that says the wine stain on it, it was
Speaker 2: pretty hard to sell.
Speaker 3: Everybody was scared of it.
Speaker 2: You get six months away and people are like, Eh,
Speaker 2: everybody's watching padding the bear. It doesn't really matter. So
Speaker 2: it's the same kind of thing as there's a bit
Speaker 2: of a stigma. If I'm the professional sitting there looking
Speaker 2: at this saying Okay, I'd rather have the benefit of time.
Speaker 2: Let me get it away from the situation so that
Speaker 2: it doesn't get caught up in the contamination or the
Speaker 2: value drag of Well, anything that Alameda or Sam touched
Speaker 2: is now toxic, and so I think it has to
Speaker 2: go through.
Speaker 3: If the longer runway they can get, the better.
Speaker 1: So you want to draw this out again.
Speaker 3: It depends on the asset, It's all I told people
Speaker 3: like it don't.
Speaker 2: I mean, there's certain assets that you know, if you're
Speaker 2: not investing in, if you're not taking care of it,
Speaker 2: if key people are leaving, if IP is walking out
Speaker 2: the door, like it's one of the reasons I support
Speaker 2: the fact they file bankruptcy quickly. But when you're coming
Speaker 2: about disposal of assets, the it's it's valuation one on
Speaker 2: one right, which is you want to sell when when
Speaker 2: the seller is not there's no compulsion to sell and
Speaker 2: the buyer has.
Speaker 3: No compulsion to buy.
Speaker 2: That's the honest price, right, And so if you sell
Speaker 2: under dress or at a time of uncertainty, it's hard
Speaker 2: to get the best price.
Speaker 3: So if you really believe you have a winner, you
Speaker 3: want to create an environment where it gives you time.
Speaker 2: And and creditors think that way too, which is, you know,
Speaker 2: they have different views of value and they're like, well,
Speaker 2: I don't want you to sell it right now, Let's
Speaker 2: let's get through this and let's get that company stable
Speaker 2: and away from FTX or away from Almeda in that case, right,
Speaker 2: and let's let's get some independent management there and really
Speaker 2: see what's worth.
Speaker 3: Some of the parts here has to be greater than
Speaker 3: the whole. Right.
Speaker 2: So this is not like Weinstein where you can go, hey,
Speaker 2: just buy FTX, right, I mean it was, it's like,
Speaker 2: or just buy Almeda, right, just coming and buy.
Speaker 1: You'd be like buying someone's at the contents of someone's
Speaker 1: attic or basement. It's such a disparate collection of things.
Speaker 2: And you know, you don't want to go with the
Speaker 2: you know, storage unit approach, like hey, just buy whatever's
Speaker 2: in here.
Speaker 3: You know, some's good, some bad. But I mean this one,
Speaker 3: I got to.
Speaker 2: Believe that, not knowing much about al Amidia, but if
Speaker 2: they made twenty investments, they should go out with basically
Speaker 2: a twenty part information memoran that says, here's what they bought,
Speaker 2: here's what it is. You have an opportunity to take
Speaker 2: their place in this position? What you go for, right,
Speaker 2: and you'd look at those, You look at those and
Speaker 2: you know that's the issue that comes up with creditors
Speaker 2: and whatnot, because credits are differently situated. There's credits that
Speaker 2: just want to be paid off and I want the
Speaker 2: nightmare to be over and I want to go on
Speaker 2: the next thing.
Speaker 3: And there's other.
Speaker 2: Credits who know they're going to have an ongoing relationship
Speaker 2: with this company or some facts sate of the company.
Speaker 3: Right, they're owed money, but at.
Speaker 2: The same time, maybe they have an exchange or they
Speaker 2: have an interest in exchange and they're causied strategic in
Speaker 2: their interest.
Speaker 1: What do you think will happen to FTX in the end?
Speaker 1: How you think this is going to play out over many, many,
Speaker 1: many years or do you think that it could be
Speaker 1: simpler than that.
Speaker 2: I think you've got two pieces here, right, You've got
Speaker 2: the FTX, which was the exchange. Me personally, I have
Speaker 2: to believe that business is dead. The people that run exchanges,
Speaker 2: based on the reputation of the exchange is that it's
Speaker 2: an honest place in order for you to exchange goods.
Speaker 2: It's very transparent and everybody's playing by the same rules,
Speaker 2: and that's dead forever the name FTX.
Speaker 3: You might as well restart Lehman Brothers.
Speaker 2: It's been so tarnished and it's such a lack of
Speaker 2: confidence in what they did and what's happened, at least
Speaker 2: what people know. You know, if I'm running this thing,
Speaker 2: that's the first thing I'm going to do, which is, well,
Speaker 2: is there some architecture or structure that somebody did to
Speaker 2: create the legitimate exchange that if you were to change the.
Speaker 3: Name has real value.
Speaker 2: So could FTX live on in another form? Yes, because
Speaker 2: people need to trade. I keep track anymore of the
Speaker 2: number of digital currencies out there, so they need notes exchange.
Speaker 2: Then you look at Alameda and look, it's just a fund.
Speaker 2: So the fund's gone. But you know the investments they made,
Speaker 2: to your point, may they have real value? And I'm
Speaker 2: sure that's going to be his defense is, look, these
Speaker 2: were valuable companies, and you can't say I committed a
Speaker 2: crime because at that certain point in time the value
Speaker 2: that's mearly depressed. And they were venture capital to your point,
Speaker 2: these were highly risky and highly speculated investments, right, venture
Speaker 2: meaning new unchartered territory.
Speaker 3: So I do think a lot of those investments.
Speaker 2: They made are probably still going to make it out
Speaker 2: now if they should never should have made them, they're
Speaker 2: probably problematic to begin with. I mean, it's I think
Speaker 2: what a lot of people seem to be saying is
Speaker 2: that he didn't really know what he was doing, so
Speaker 2: he was out investing in every scheme that crypto had available,
Speaker 2: and so you're gonna have a lot it's just absolute
Speaker 2: junk in here.
Speaker 1: If you imagined us ten years in the future, who
Speaker 1: what kind of person is going to make a killing
Speaker 1: off the FTX bankruptcy?
Speaker 2: And as I see her today, I don't think it's
Speaker 2: going to be a good story because it's.
Speaker 3: Not like, you know, there's let's say, get lucky.
Speaker 2: I don't see it being a phoenix coming from the ashes, right.
Speaker 3: I mean, it's going to be a very long slog
Speaker 3: to regain trust.
Speaker 2: Technically, you're going to earn the comeback of this, right,
Speaker 2: So it's gonna be somebody who buys it and takes
Speaker 2: a long time to say, Okay, how do we earn
Speaker 2: back trust? How do we create real value in this exchange?
Speaker 2: And it's just going to take time to do. I
Speaker 2: don't think there's any quick hero story here that is
Speaker 2: going to emerge.
Speaker 3: And that's why I'd have no idea who wants to
Speaker 3: buy it?
Speaker 2: Because it's this, This is gonna be real work, and
Speaker 2: you're almost better off just starting in new exchange.
Speaker 1: What about a quick hero story in the purchase of
Speaker 1: the five billion dollar venture portfolio?
Speaker 2: If you look at the five billion in investments, again,
Speaker 2: I have to go investment by investment what is it
Speaker 2: that they invested in? Because there's a lot of useful
Speaker 2: things in blockchain and coins that are created that are
Speaker 2: creating real value. And if you were to come in
Speaker 2: when nobody wanted to touch it and buy it and
Speaker 2: stabilize it and carry it.
Speaker 3: Through, I'll meet it. I'll meet it.
Speaker 2: Right, Yeah, probably a lot to work with, right, there's probably,
Speaker 2: But again, your your first objective is to buy it
Speaker 2: and get it as far away from FTX as possible. Right,
Speaker 2: It's almost like you don't want to admit where you
Speaker 2: found it. Would you buy that through my banker?
Speaker 3: Right now?
Speaker 2: Because as soon as you say I bought it from FTX, like,
Speaker 2: oh you sure, it's not. It's just human tendency, right,
Speaker 2: It's just just the scarlet a if you will.
Speaker 1: Yep, all right, So my producer has dug up this quote.
Speaker 1: I think it's pretty funny that you said people have
Speaker 1: called you an opportunistic capitalist, tombstone steeler and raider, but
Speaker 1: you consider what you do to be effective altruism. Why.
Speaker 2: Look, I really believe that you know, the world moves
Speaker 2: in cycles. You go up, you go down, right, You
Speaker 2: have good days and bad days. You live in a
Speaker 2: binary world.
Speaker 3: And so.
Speaker 2: Going out and saying I want to find weak and
Speaker 2: underperforming assets and buy them and bring them back to
Speaker 2: where they should be to me is a very noble pursuit.
Speaker 2: But yep, human tendency is when somebody succeeds to say, well,
Speaker 2: they must have cheated, they must have done something. And
Speaker 2: the more you succeed, the more you must have somehow
Speaker 2: done something that was right. There are people that are like,
Speaker 2: shame on you for making money on the Weinstein company.
Speaker 3: You came across and took advantage of the situation. You know,
Speaker 3: shame on you. Right.
Speaker 2: It's I always said if I wrote a book about
Speaker 2: my life, the opening line would be no good deed
Speaker 2: goes unpunished, Right, Because I look at it as I
Speaker 2: bought an asset that thousands of people worked on to
Speaker 2: make movies and television shows, and then I took it
Speaker 2: from a position of almost going into the abyss and
Speaker 2: put it back into you know, people are enjoying it,
Speaker 2: and you know, the credits did well. And I paid
Speaker 2: more and assume more than anybody else would do. But
Speaker 2: if you're the one that lost money and got wiped out,
Speaker 2: the guy who buys FTX and makes money is somehow evil.
Speaker 1: I really appreciate you doing this for us.
Speaker 3: No, No, it's good. It'll bit of fun and I'm excited.
Speaker 1: Yeah, it's totally fun.
Speaker 3: I'm excited for this book.
Speaker 1: It's it's a really fun book to write.
Speaker 3: All right, see you later, all right, see you later.
Speaker 1: Andy Mitchell is managing director of Lantern Asset Management, a
Speaker 1: private equity firm focused on business turnarounds and restructurings. On
Speaker 1: Background is hosted by me Michael Lewis and produced by
Speaker 1: Catherine Gerardeau and Lydia Jane Kopp. Our editor is Julia Barton,
Speaker 1: Our engineer is Sarah Bruguier. Jake Flanagan helps us with licensing.
Speaker 1: Our show is recorded by Koepher Ruth at Berkeley Advanced
Speaker 1: Media Studios. Our music was composed by Matthias Bossi and
Speaker 1: John Evans of stell Wagon. Sephonet Owen Miller published each
Speaker 1: and every episode on Background is a production of Pushkin Industries.
Speaker 1: Don't forget that we have the website atr podcast dot
Speaker 1: com in case you want to send me a question
Speaker 1: or a complaint or anything else that's atr podcast dot com.
Speaker 1: Watch this feed for the launch of the next season
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