From: Ann Okerson <ann@cni.org>
Subject: Faxon Update
May 26, 1994
To: ARL Directors
From: Ann Okerson/ARL
Re: Faxon Update
Notes from a phone conversation with Mark Zuroff, Chief Financial
Officer of the Faxon Company, Westwood, Massachusetts, May 25th. Mr.
Zuroff has now reviewed and amplified the written notes and they are
distributed with his permission.
You will be receiving this memo by fax also (tomorrow), as it has just
missed inclusion in the Austin meeting followup mailing that is going
out.
*********************************************************************
The ARL Scholarly Communications Committee and a number of other ARL
library deans/directors suggested that ARL should try to obtain further
information, particularly "hard" information on the Faxon situation. It
was agreed that member libraries would like to see Faxon succeed or as a
second choice, to see a speedy and successful sale, so that their
institutions' finances would be secure and the work of their serials
departments could proceed with little or no interruption.
The purpose of the call, then, was to obtain further information from
someone in a key authority position at Faxon and to seek his or her
advice re. how big research libraries could behave most sensibly and
resourcefully, given the current situation. Another question was one of
timing: how soon will there be a resolution to the current uncertainty?
According to Mr. Zuroff:
o Faxon customers are understandably concerned about not only Faxon but
the entire serials industry and need to be kept abreast of information
and developments. Faxon appreciates the call and stands ready to
provide whatever information it can. Zuroff stated the importance of
our calling Faxon for authoritative information rather than believing
rumors.
o Some of the rumors have a degree of accuracy, such as that Faxon is
for sale, but some are malicious and incorrect. For example, there is
no plan to file for bankruptcy. Bankruptcy is a matter of public record
and if filings were made it would quickly become known.
o For various reasons including cash flow, toward the end of 1993 Faxon
paid all its publishers for 1994 subs except for some 30+ publishers.
With those, it made an extended payment arrangement into mid-1994. The
April 1994 payment was made to the majority of those publishers, but not
to some. Arrangements were made with those few publishers to delay that
payment. Although the publishers have a security document (the extended
1994 arrangements were fully secured), they were concerned.
Therefore, on May 11, Faxon invited its eleven major publishers to a
meeting in Boston in order to fully apprise them of Faxon's financial
status, to announce the intention to sell the company, and to inform the
publishers of the status of a sale. Mr. Zuroff affirmed that indeed
Faxon had the cash flow to make those payments, but making them would
not provide sufficient reserves for normal variances in operating cash
flow, so Faxon decided to extend payments to that group of publishers at
that particular time.
o The most likely -- and happiest -- resolution to the current situation
is that Faxon will be sold. There has been a fair amount of due
diligence done already. There are four serious and reputable bidders.
These bidders will make proposals to Faxon by May 31 in such a way that
"apples can be compared to apples." That is, the bids are requested as
bids for the whole company or substantial pieces of the whole company.
(Faxon has 21 subsidiary companies.)
o In assessing the bids, Faxon will be optimizing the needs and
well-being of many stakeholders (clients, publishers, creditors,
librarians, customers, etc). It is Faxon's intention to do everything
possible to make ownership changes virtually transparent to clients.
Once offers are made, Faxon expects to announce information about the
buyer in "days to weeks." It certainly will not be "weeks to months."
Everyone wants this scenario to succeed.
o I mentioned the question of appearance (or feeling) of monopoly, if
Faxon is purchased by EBSCO, which would then have a vast majority of
North American academic library subscriptions. Thus there would be, in
effect, far less choice for these customers. Mr. Zuroff said that
those are the kinds of questions that are, of course, taken into account
while optimizing the interests of all stakeholders in the process. Mr.
Zuroff could not confirm or deny who any of the bidders are due to very
strict and confidential non-disclosure agreements between all bidders
and Faxon.
o When I raised a question about our member libraries' making their 1995
payments more secure through performance bonds or escrow accounts and
asked for advice, Mr. Zuroff indicated that performance bonds require a
substantial fee, making them an unattractive business solution for
either party.
Escrow accounts, Zuroff explained, remove the funds from use by any of
the parties -- the library, agent, or publisher -- serving no productive
purpose. Faxon could not, for example, pay interest on funds in an
escrow account. Mr. Zuroff counseled that a reasonable choice for
concerned ARL members would be to wait. He affirms that by waiting for
possibly two to three weeks, customers may well find that there is going
to be a relatively happy resolution given the current circumstances, one
which would assure customers that their pre-payments for 1995 are very
safe. (Of course, any outstanding 1994 payments that are owed to Faxon
should be properly and routinely made.)
We will attempt to keep ARL directors informed about events of keen
concern to the membership as these events may develop.
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