Integrated's Latest Acquisitions: Two Big Bidders

Integrated Resources has been disintegrating for the past several years. One of the last decade's hottest acquirers, the financial-services company now is languishing in bankruptcy court with a crushing $2 billion debt load. To raise money to pay its myriad creditors, Integrated has had to sell off many of the assets it added during the 1980s: an insurer, a money-management firm, a stock brokerage, a corporate-jet manufacturer, and many real estate limited partnerships, the company's specialty.

But unlike many casualties of the 1980s, Manhattan-based Integrated is not a dried-out husk. It's a takeover artist's prize. That is why it's attracted an array of eager suitors and engendered no small amount of acrimonious maneuvering by those with a stake in its fate. Currently, a couple of investment powerhouses are vying to acquire Integrated and bring it out of Chapter 11. The ultrarich Pritzker family of Chicago and Steinhardt Management Co., headed by Wall Street whiz Michael H. Steinhardt, are floating heavyweight bids--$200 million by the Pritzkers, $237 million by Steinhardt. Bankers Trust New York Corp. also was a strong contender, bidding about $210 million, but dropped out in January. If all goes well, the court should choose a winner this summer, and Integrated will change hands by yearend. The proceeds of the bidding will go into a fund to pay off creditors. But despite the hefty bids, creditors are likely to recover only a fraction of their claims.

RENT DUE. The allure of Integrated to bidders is that this 1980s sinner has retained a core of valuable assets (table), most of which should be real earners in the 1990s. "We still own things that are very, very attractive for any bidder," says Integrated CEO Frank W. Geller, its former chief counsel who took over in March. The prime asset: limited partnership syndication fees, also known as contract rights, which entitle Integrated Resources to a future share of the rental income from 147 property-investment groups it organized from 1978 to 1985. These partnerships of wealthy individuals mainly own fully occupied office buildings leased to such blue-chip corporate tenants as Federal Express, Hershey Foods, and Xerox. Annual payments to Integrated start in 1995. Although they begin at $3 million, they are scheduled to swell to $117 million in 2007.

Other assets offer a little less enticing profit potential. These include stakes in real estate partnerships, hurt by vacancy rates, but that the company insists remain profitable. Then there are partnerships that lease out airliners and other equipment such as buses and computers whose profits have dipped during the recession. One group, American Income Partners, rents planes to two carriers in Chapter 11--Continental Airline Holdings Inc. and Trans World Airlines Inc.--so its fortunes hinge on the outcome in court, which has the power to end leases.

The flushest asset, Integrated's $390 million cash hoard, is out of bounds for an acquirer. It is reserved to pay off creditors. The fund is substantial because it holds the proceeds from such asset sales as the $75 million that Canada's Bombardier Inc. paid for plane maker Learjet Corp. in 1990.

Integrated also contains a potentially horrific liability: 40 lawsuits filed by limited partners who got burned on Integrated-syndicated partnerships that are in bad shape. They seek millions in damages. "Regardless of the sale, our suits go on," vows Chicago attorney Herbert Beigel of Beigel & Sandler Ltd. Integrated blames the partnerships' woes on the poor real estate market.

MILKEN DISCIPLES. During its heyday, Integrated's go-go founders, brothers Selig and Jay Zises, happily expanded into all sorts of fields on the strength of junk-bond financing from Drexel Burnham Lambert Inc. and its doyen of debt, Michael R. Milken. Integrated reaped a bonanza selling limited partnerships, preaching the virtues of tax deductions for real estate investment losses. Then came a devastating triple whammy: the demise of tax breaks for partnerships in 1986, the stock market crash in 1987, and the real estate slump beginning in 1989. The Zises brothers left, and Drexel Managing Director Stephen D. Weinroth became chief executive. The mess, however, was too big for him to sort out, and in early 1990, Integrated landed in Chapter 11.

That was a revolting development for Integrated's creditors. Right now, holders of Integrated's senior-ranked junk bonds--with interest rates ranging from 10% to 11%--stand to get about 40 on the dollar, while the lesser-ranked subordinated bonds (9% to 13%) will be lucky to regain 3 . This, though, is subject to negotiation among the various parties. Creditors have clout in Chapter 11 proceedings, since they must O. K. any reorganization plan to bring a company out of bankruptcy. The senior creditors' lawyer, Kenneth Eckstein, a partner at New York's Kramer, Levin, Nessen, Kamen & Frankel, dryly observes: "We hope to get more money" than what the bidders have offered to date.

Integrated's two-year confinement in Chapter 11 stems from particularly cantankerous squabbling among creditors and suitors. The senior lenders had a running war with Bankers Trust, which emerged last summer as the leading bidder. They feared that the bank would make them an even skimpier settlement than other potential bidders then on the scene. After months of hassling, the Pritzkers appeared with a more attractive bid, so frustrated Bankers Trust bowed out in February. Steinhardt showed up a month later.

QUID PRO QUO? Another dust-up came Mar. 26, when the senior lenders ousted Weinroth, Integrated's CEO. The group was enraged that he favored Bankers Trust. They charged that Weinroth's pro-Bankers Trust stance was owing to the bank's supposedly promising him an equity stake in the new Integrated.

Both Bankers Trust and Weinroth denied the allegation. "We had nothing overt, nothing covert, not as much as a wink between us," insists Weinroth, who hammered out an agreement to get $2.25 million in severance pay after it was clear he had lost the senior lenders' confidence. Weinroth says the creditors' snub of Bankers Trust has only prolonged the costly bankruptcy process: Legal and other expenses are running about $2.5 million per month.

So who will win the bidding, the Pritzkers or Steinhardt? The two sides aren't talking about their bids, which are still being fleshed out. The junior debtholders, though, are warmer toward Steinhardt because he offers more cash up front. Although they claim neutrality, senior creditors are closer to the Pritzkers.

The family, which started the Hyatt Corp. hotel chain, has a long history of acquiring and successfully running businesses. Last year, for instance, the Pritzkers paid $46 million for TIE/Communications Inc., a bankrupt maker of telephone equipment. Steinhardt has little operational experience: His pursuit of USAir Inc. in 1989 came to naught. But as a money manager, his financial prowess is legendary.

The winner will bag an enterprise that is an emaciated version of its former self. But with a little help, the reintegrated company could regain a measure of its past glory.

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