Fortune Revels in Financial Disasters at Forbes

By
Forbes Media Chairman and CEO Steve Forbes attends a function in Mumbai on October 10, 2009. Forbes has donated an amount of 133,095 INR (2,861 USD) to the "Make-a-Wish" foundation which assists underprevileged and homeless children in India.  AFP PHOTO/ Sajjad HUSSAIN (Photo credit should read SAJJAD HUSSAIN/AFP/Getty Images)
Forbes Media Chairman and CEO Steve Forbes attends a function in Mumbai on October 10, 2009. Forbes has donated an amount of 133,095 INR (2,861 USD) to the "Make-a-Wish" foundation which assists underprevileged and homeless children in India. AFP PHOTO/ Sajjad HUSSAIN (Photo credit should read SAJJAD HUSSAIN/AFP/Getty Images) Photo: Sajjad Hussein/AFP/Getty Images/2009 AFP

It is no secret that the vast fortunes of the Forbes family have been shrinking — in recent years they've famously sold off their archipelago in Fiji, their Colorado ranch, their palace in Tangier, their Boeing 727, their publishing headquarters on lower Fifth Avenue, and their record-breaking collection of Fabergé eggs. And it's well-known that a hedge fund, Bono and Roger McNamee's Elevation, bought a large stake in their media company at the height of the bubble in 2006 and subsequently lost a bunch of money. But just how bad the situation has been was unknown until Forbes magazine's rival Fortune got its hands on some confidential J.P. Morgan documents. (Somebody's lips aren't as pillowy and tight as Jamie Dimon's.) Turns out that when the Forbes family sold 45 percent ownership to Elevation, they only got $237.2 million for it. (The Times had reported between $250 and $300 million at the time.) $107.4 million of that went straight to the family's pockets. Elevation expected to make a lot of money on the deal, with their plan hinging upon a sharp increase in profits. Instead the company dove into the red.

The crash caused the Forbes operation to default on a $90 million rotating line of credit, and they had to bring on distress experts who forced them to sell the online investment dictionary Investopedia, replace Steve Forbes as CEO, and meet certain financial goals. All three were accomplished, and the company says it's out of the woods.

But that doesn't mean Fortune's not having fun with all of this. Here's the kicker from their story:

[W]hat should not be forgotten is that the deal with Elevation that set this chain of events in motion has been a failure. It burdened Forbes Media with debt that it ultimately struggled to pay, so much so that the company had to be gutted. Five years later Forbes Media's earnings power has declined precipitously, and Elevation is nowhere near the return on investment it had predicted. The Forbes family was able to take a lot of money off the table. That's timely because it is running out of trophies to sell. Last year the Forbes family motor yacht, The Highlander, was put into dry dock, its crew laid off.

Today, after the Fortune article hit the wires, Steve Forbes sent out a rallying cry to his staff, and a nastygram to his rivals at Time Inc. "Today Fortune magazine published a story on Forbes with the clear intention of disrupting the business of its most formidable competitor," he wrote. "Fortune was aware that this was highly confidential, private information, and of no value to release to the public. Though the intention is to harm our business, it will not adversely impact Forbes because it highlights a very difficult time in the past when all the media industry was going through unprecedented upheaval."

It's funny that a man who runs a financial magazine would think this information has "no value to release to the public." Almost as funny as the fact that Steve Forbes himself, who ran for president on flat taxes and on his capitalistic know-how, is increasingly known as the son who has had to resort to looting his own family's treasures.

The Forbes family's big deal causes big trouble [Fortune]
Here’s What Steve Forbes Is Telling His Staff About That Brutal Fortune Article [AllThingsD]