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Hedge fund manager David Einhorn takes stake in N.Y. Mets

Hedge fund manager David Einhorn, president of Greenlight Capital Inc., has agreed to buy a minority stake in the New York Mets baseball team for $200 million, according to news reports.

The Wall Street Journal reported that Einhorn's stake is less than 49%. The Mets, whose majority owners are brothers-in-law Fred Wilpon and Saul Katz, are expected to lose up to $70 million this year, the Journal reported. Last year, they borrowed $25 million from Major League Baseball, the article said.

A minority stake doesn't necessarily give Mr. Einhorn, 42 years old, any ability to change the team's fortunes. He isn't expected to be involved in day-to-day management, according to people familiar with the matter. And Mr. Einhorn didn't seek any stake in the profitable sports cable channel Sportsnet New York, of which Messrs. Wilpon and Katz own 65%.
But [Einhorn] may believe he has the team's owners in a squeeze play. Given their need for cash, he can drive a hard bargain now and perhaps angle to secure the chance to gain control in the future, sports bankers said.

Wilpon and Katz are being sued by Irving Picard, the trustee recovering assets for victims of Bernard Madoff's Ponzi scheme, the Journal report noted.

By gaining an investor in the Mets, the owners can now focus on gathering money for a possible settlement with Mr. Picard. They are expected to use the cash injection to cover expenses, pay down debt and repay Major League Baseball.

The New York Daily News reported that $100 million of Einhorn's investment will go toward the club's debt, which is believed to total about $600 million. Citing a source close to the negotiations between Einhorn and the Mets, the Daily News reported:

Einhorn is structuring the deal so that he is in effect assuming the $100 million in debt as a protection in the event of a judgment against the Mets' owners in the hotlycontested Madoff litigation. His investment, therefore, would not be subject to a claim of assets by ... Picard, although if the Wilpons do end up with a favorable ruling in the Picard case, Einhorn's $100 million in debt will then become equity.

The Daily News report also said:

If Einhorn does exercise his option to increase his investment to a majority share -- believed to come into effect in about five years unless a Madoff judgment would come sooner -- Wilpon and Katz can block him and retain control of the team they have owned for three-plus decades by buying out Einhorn, at which point his one-third percentage in the team would be decreased by nearly half, or about 16% - 17%. The source described the buyout as being at "an unfavorable price to the Wilpons and Katz (conceivably close to the $200 million investment)." 

(Source: Wall Street Journal, May 27, 2011; New York Daily News, May 28, 2011.)

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