Metro Detroit billionaire businessman Manoj Bhargava faces a lawsuit tied to his ongoing takeover bid of the former publisher of Sports Illustrated magazine.
The lawsuit, filed last week in California in a Los Angeles County court, is brought by Ross Levinsohn, a veteran media executive and the former CEO of Arena Group Inc., a New York City-based publishing company for which Bhargava has been mounting a takeover bid since summer.
Bhargava is best known as the founder of the 5-hour Energy drink brand and runs myriad companies out of an office park he owns in Farmington Hills. He is named as a defendant in the lawsuit along with Arena Group — which up until January had published Sports Illustrated under a licensing deal from owner Authentic Brands — along with several other people connected to Bhargava.
The 60-plus-page lawsuit accuses Bhargava of being “a wolf in sheep’s clothing,” presenting himself as a “like-minded investor” in Arena Group but engaging in “illegal misconduct, overt self dealing, and systematic destruction of shareholder value.”
Bhargava spokesman Steve Janisse declined to comment Wednesday, citing pending litigation, while a spokesperson for Arena Group did not respond to a request for comment.
News of Levinsohn’s lawsuit was first reported Monday by Business Insider.
“Ross Levinsohn, like so many others, gave his full energy and devotion to the company in the belief that his contractual rights would be respected,” Bryan Freedman, a Los Angeles-based attorney representing Levinsohn, wrote in an emailed statement to Crain’s on Wednesday. “This unnecessary distraction and added cost to the company, which could easily have been avoided, hurts the shareholders’ interest, which should be a priority.”
The lawsuit also alleges that Bhargava illegally fired Levinsohn from his position as CEO of the publicly-traded Arena Group (NYSE: AREN), a company that has seen its stock plummet more than 75% in the last year and now trades at around $1 per share.
Per the lawsuit, Levinsohn took over as CEO of Sports Illustrated in 2019 and subsequently became chief executive of its publisher, Arena Group, the following year. Levinsohn and his team immediately began a turnaround of the company, which “was nearly insolvent, loaded with more than $90 million in debt, burdened by millions of dollars in lease payments and public company costs, and operating under a license agreement for Sports Illustrated that mandated a minimum payment of $15 million a year,” according to the complaint.
While the lawsuit says that revenue and profits improved considerably under Levinsohn’s leadership, additional capital was needed for general operations and growth.
An early warning sign for Levinsohn, the lawsuit says, came last fall shortly after Bhargava’s deal to acquire a majority stake in Arena Group had been announced. The complaint says that in November, B. Riley Financial — described as a “financial partner for Arena Group,” owning more than 40% of the company’s equity and nearly all of the debt — “found itself in a precarious position.”
That’s because Bhargava and B. Riley Financial CEO Bryant Riley had struck a deal for the metro Detroit businessman to acquire all of the financial firm’s debt and equity in Arena Group, in what the complaint says was a transaction worth $100 million.
“While the B. Riley transaction first appeared to be an expression of Bhargava’s continued enthusiasm for the merger he’d negotiated and diligenced with Arena, it swiftly became apparent that his intentions were far more Machiavellian,” the complaint says.
Upon becoming the largest equity shareholder with 44% of the company’s stock, “Bhargava seized on the powers and privileges this afforded him, including the immediate replacement of two B. Riley-appointed directors with two of his own representatives to the Arena board,” the complaint says. “However, in the days and weeks that followed, emboldened by a false sense of control, Bhargava and his sitting board members would take stunning actions that far exceeded their legal authority, in an effort to take over the Company.”
The complaint by Levinsohn — whose career before serving as CEO of Arena Group included stints as interim CEO of Yahoo and several other tech and media properties — goes on to levy a host of allegations against Bhargava and his associates, including:
- Breaching the employment contracts of Levinsohn and other top Arena Group executives;
- “Unilaterally” reorganizing the company and disparaging top executives, despite being “a mere minority shareholder;”
- Retaliation against Levinsohn and others for a refusal to participate in various plans proposed by Bhargava;
- Providing false financial information for his own media holdings, which have been slated to be merged into Arena Group as part of the deal;
- Seeking to use Sports Illustrated swimsuit models to promote his own businesses and providing them with gifts such as diamond jewelry.
Bhargava’s looming takeover of Arena Group became the object of national attention in January when Sports Illustrated’s owner, Authentic Brands, canceled the licensing agreement after the licensee missed an interest payment. Subsequently, nearly all of the staff was at least temporarily laid off.
Levinsohn’s complaint states that Bhargava had issued a directive that the company cease paying debt payments, “thus putting Arena in default and allowing Bhargava the opportunity to take over Arena in the event of bankruptcy, all to the detriment of shareholders.”
Earlier this month, Lower Manhattan-based Minute Media announced it had struck a deal to license the publishing rights of the storied Sports Illustrated brand.
Bhargava’s deal to acquire the majority stake in Arena Group has yet to close, but the proposed deal remains ongoing.
This article originally appeared in Crain’s Detroit Business.
Nick Manes, Crain's Detroit Business , 2024-03-28 21:07:35
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