Timberwolves Minority Owner Cries Foul, Files Suit Over Proposed Sale

28May 2021

The potential sale of the Minnesota Timberwolves and Lynx hit a big bump in the road on Wednesday. New Jersey-based Orbit Sports LLC, which owns more than 17 percent of the teams, has filed suit against Timberwolves owner Glen Taylor alleging that the Minnesota billionaire is breaching the partnership agreement with Orbit. ESPN first broke the news on Wednesday night.

Taylor has struck a widely reported deal to sell the teams to Alex Rodriguez and Marc Lore for $1.5 billion. The lawsuit, filed in federal court in Minneapolis, lists Taylor, Taylor Corp. and Taylor Sports Group Inc. as defendants.

The suit is seeking an injunction to block Taylor from selling any of his interest in the teams until partnership issues are resolved. Orbit is also seeking monetary damages “believed to total at least $300 million.”

Orbit is owned by Meyer Orbach, a commercial real estate magnate whose name is not well known in Minnesota. His Orbach Group is one the larger owners, developers, and managers of multifamily real estate on the East Coast.

In a 2019 Sid Hartman column, Taylor referred to Orbach as “my friend from New Jersey.”

When Orbit first invested in the Timberwolves in 2016, its investment was contingent on receiving a guarantee that it could sell its interests if Taylor ever sold the teams. The partnership agreement included “tag-along rights” which gave Orbit the right to sell its stake to a new owner. According to the lawsuit, such provisions are commonly found in partnership agreements.

The lawsuit contends that Orbit stepped in at a key time for Taylor:

Orbit’s significant stake in the Timberwolves and Lynx is no accident: Taylor solicited Orbit’s investment at a time when he sorely required a capital infusion.

The crux of the lawsuit is whether or not Taylor’s proposed sale triggers the “tag-along rights.” Orbit Sports argues that those rights are effective once Taylor proposes the sale of the teams. In the lawsuit, Orbit contends that Taylor is arguing that those rights are not effective because he’s not yet selling controlling interest in the teams yet.

At a minimum, the proposed sale appears to have a unique structure.

The Orbit Sports lawsuit charges that “the deal with Rodriguez and Lore was structured as a clumsy attempt to circumvent Orbit’s tag-along rights.” As proposed, the deal calls for a series of sales over the next few years. According to the lawsuit:

Under his agreement with Rodriguez and Lore, Taylor’s sale of an initial 20% of the teams is scheduled to close in 2021. Under the same agreement, Taylor is also issuing “options” for Rodriguez and Lore to acquire all of Taylor’s remaining interests on or before various specified outside dates up to the end of 2024. Nothing in this convoluted structure diminishes Orbit’s ability to exercise its tag-along rights now.

The buyer has no obligation to buy out the limited partners. But Orbit’s lawsuit contends that if they don’t, then it’s Taylor who is on the hook. According to the suit:

Under the partnership agreement, if the prospective purchaser does not agree to purchase Orbit’s interests, Taylor himself must acquire them. Moreover, the partnership agreement provides that Taylor may not transfer any partnership interests – including his own – unless and until he has honored all tag-along rights.

Orbit’s lawsuit contends that Taylor has been completely ignoring its largest minority owner throughout discussions of the proposed sale. Orbit has sent several letters to Taylor to make its case. Its suit notes, “Unfortunately, Orbit’s good faith efforts have been met with silence and stonewalling.”

Taylor issued a brief statement on Thursday declining comment on the lawsuit.

The suit also charges that Taylor’s public declarations that the sale to Rodriguez and Lore includes a provision that the team must stay in Minnesota are not accurate: “The truth is that Taylor’s agreement with Rodriguez and Lore does not, in fact, require them to keep the Timberwolves in Minnesota.”

But that detail is not the core issue for Orbit.

Taylor paid $88.5 million in 1995 to buy the team from original owners Harvey Ratner and Marv Wolfenson. At the time, Taylor stepped in to prevent the team from moving to New Orleans. A few years later, Taylor purchased the Lynx.

In recent years, Taylor has been selling off minority interest in the teams.

In the fall of 2015 Taylor started negotiating to sell a 30 percent stake to Steve Kaplan, a Los Angeles private equity investor. That deal never went through. Instead, Taylor sold minority stakes to Chinese investor Lizhang Jiang and Orbach in 2016.

Jiang sold his interest back to Taylor in 2019. According to Sid Hartman’s 2019 column, it appears that Orbit boosted its stake in the teams at that time by acquiring more shares from Taylor.

In a 2016 interview with Twin Cities Business, Taylor had nice things to say about his then-new limited partners:

“I like partners because they’re going to challenge you to run it better. My two new limited partners [Lizhang Jiang, general manager of Shanghai Double Edged Sports, and New York real estate mogul Meyer Orbach of the Orbach Group] are really good businessmen, and it will be a good investment for them, but they will work for it.”

A February story in the New York Post said sources indicated that Taylor had approached the NBA a few months earlier to sell a stake to Dallas-based Arctos Sports Partners, a private equity group started in 2019 to buy small stakes in sports teams. But the possible deal went nowhere; Arctos had not been approved by the NBA.

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