Los Angeles businessman Alex Meruelo’s deal to buy the Hawks is off.
The agreement between Meruelo and Atlanta Spirit Group, signed in August and contingent on NBA approval, was mutually terminated Friday after Meruelo would not meet economic conditions placed on the deal by the league.
The termination of the agreement means Atlanta Spirit — a group led by Bruce Levenson, Ed Peskowitz and Michael Gearon Jr. — will remain the Hawks’ owner. In fact, the group says it now plans to take the for-sale sign off the franchise and continue to own it indefinitely.
“The Atlanta Hawks are no longer for sale,” Levenson said in a statement. “We’re excited to remain as owners of the Hawks and are committed to building on our string of four straight playoff appearances.”
Meruelo announced Aug. 8 what he called a “definitive” agreement to buy a majority stake in the team, subject to approval by the NBA Board of Governors. The approval process bogged down in the past month, as previously reported by The Atlanta Journal-Constitution, because the league required additional funding from Meruelo that was not contemplated in his original deal.
The NBA’s stance was similar to the one the league took when Atlanta Spirit bought the Hawks, as well as the Thrashers, from Time Warner in 2004. At that time, the NBA and the NHL approved the transaction only after several Spirit partners agreed to make personal financial guarantees of about $90 million to ensure sufficient liquidity to fund the money-losing teams’ operations going forward.
The NBA and other leagues often require such financial guarantees — in the form of cash, a letter of credit from a bank or additional equity investments by partners — before approving ownership changes. That is particularly the case in deals that involve a money-losing franchise and deals that otherwise require relatively little upfront cash from the buyer at closing.
“Basketball is my passion, but professional basketball is a business,” Meruelo said in a statement Friday. “Although all parties negotiated in good faith, we were not able to reach a satisfactory agreement on some key issues, given the current uncertainty surrounding the labor issue.”
The labor issue, of course, is the lockout that has the NBA shut down.
A 75-percent vote of the NBA Board of Governors is required to approve a team sale, but a vote is not scheduled until league officials and a committee of owners — the advisory finance committee — sign off on a proposed deal. In this case, the matter never got to a vote as the process stalled after the league set its conditions for approval.
At a Philips Arena news conference Aug. 8, an emotional Meruelo expressed pride about the prospect of becoming the league’s first Hispanic owner and vowed to do everything possible to bring a championship to Atlanta.
Meruelo, 48, is the founder and chairman of The Meruelo Group, a California-based holding company that owns businesses ranging from pizza restaurants and construction firms to a casino and a TV station.
From August through early October, Meruelo made several trips to Atlanta, acclimating himself to the city. He had introductory meetings with Georgia Gov. Nathan Deal and Atlanta Mayor Kasim Reed and attended a reception with Hawks sponsors.
“I want to thank the Atlanta community who welcomed me with open arms,” Meruelo said in Friday’s statement. “I am humbled and blessed by their warmth and hospitality.”
He also expressed “great respect” for the Hawks’ owners and the NBA.
“I ... remain committed to fulfilling my dream of owning an NBA team,” Meruelo said. “I look forward to that opportunity in the future.”
Both Meruelo and Atlanta Spirit declined to answer questions about the specifics of the sale’s collapse, citing a confidentiality provision in their agreement to terminate the deal.
Nine days earlier, with the deal clearly in jeopardy, Meruelo said he had “more than ample resources” to operate the Hawks “in a first-class manner” and that he was committed to completing the purchase. However, no progress was made toward NBA approval in the following week, leading to the signing of an agreement Friday afternoon to abandon the deal.
Atlanta Spirit’s subsequent statement that it is taking the Hawks off the market constitutes a change in course for the ownership group, which in June sold the Thrashers — now the Winnipeg Jets — and also had long sought a buyer or major investor for the Hawks.
The value of Meruelo’s original deal to buy the team was estimated by sports-business experts in August at $300 million-plus — an amount based largely on the debt he was to assume or pay off.
Based on prior reports or court records, those debts included the approximately $120 million the Hawks borrowed last year from the NBA’s league-wide credit facility and the $40 million-plus owed to Turner Broadcasting/Time Warner, which financed part of its 2004 sale of the Hawks and Thrashers to Atlanta Spirit.
The debt to the NBA credit facility would transfer with the franchise to a new owner, while the debt to Turner/Time Warner, backed by Levenson and Peskowitz, likely would have to be paid off or renegotiated by a new owner.
Also, the Hawks remain responsible for debt payments on the bonds that paid for the construction of Philips Arena. The $124 million left on those bonds was refinanced in August 2010, with the Spirit pledging Hawks and arena revenues, up to the maximum annual lease payment, as collateral.
In addition, the $300 million-plus price included the value of the minority stake that, under terms of the August agreement, was to be retained by Atlanta Spirit.
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