Investing in the second act of the business drama of Michael Milken, the onetime king of junk bonds, has not been a rewarding experience for everyone. Just ask the shareholders of NexteraEnterprises, a company controlled by Milken and his brother, Lowell, with Lawrence Ellison, the chairman of Oracle.
Nextera’s shareholders are scheduled to meet on Friday to vote on the company’s proposed sale of its only operation, a corporate- consulting business called Lexecon, to FTI Consulting for $130 million. The transaction, which is expected to close before the end of the year, would leave Nextera as a penny stock representing ownership of an empty shell.
Compared with LeapFrog Enterprises, a company taken public by the Milken brothers and Ellison last year, Nextera has been a toad. Investors paid $10 for shares in its initial sale, in 1999, and on Wednesday it was trading up 2 cents at 38 cents on the Nasdaq market.
By contrast, shares of LeapFrog, which makes educational toys, hit a high of $47.30 last month before falling sharply after a disappointing third-quarter earnings report. The shares fell $1.25 on Wednesday, to $33.12 in late trading. Last week, when Michael Milken registered to sell one million of his 7.9 million shares, they were worth about $35 each, almost triple the initial offering price 16 months ago. The Milkens and Ellison control LeapFrog through Class B shares that give them 90 percent of the voting power in the company.
They exert similar control over Nextera, making the approval of the sale on Friday a certainty.
What is not clear is what they will do next with Nextera, which will have no operating business and will be in jeopardy of having its stock removed from the exchange’s listings. The Nasdaq has notified the company that it could be delisted from the exchange’s small-capitalization market as soon as Nov. 30.
The chief financial and operating officer of Nextera, Michael Muldowney, said it had hired an investment bank, Harch Capital Management, to search for a private business worth $30 million to $70 million that it could acquire
Joseph Harch, the founder of Harch Capital Management, which operates hedge funds in Florida, is an old ally of Michael Milken. Harch was an executive at Drexel Burnham Lambert when Milken ran that firm’s junk-bond trading operation in the 1980’s. Milken pleaded guilty to six criminal securities charges in 1990. He served nearly two years in prison, paid more than $1 billion in fines, penalties, restitution and civil settlements and was barred from the securities business for life.
Harch consulted with Nextera on its decision to sell Lexecon to FTI.
The sale would put an end to what began as a big idea: to build a one-stop shop for companies that need advice on staffing and technology and expert views on economic and legal matters. At first its prospects were trumpeted by analysts at several brokerage firms.
But within two years of the company’s stock sale, markets swooned and the economy faltered, curtailing demand for such advice.
The technology spending drop-off in 2001 resulted in the company needing to revisit its strategy, Muldowney said in a telephone interview on Tuesday. In part it was a realization, he added, that technology spending was not going to rebound any time soon.
