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Morgan Stanley has taken the extreme step of suing a client, charging children’s TV programmer Haim Saban with reneging on $11.9 million in fees the investment bank claims it is owed for assisting in last year’s sale of Fox Family Worldwide to the Walt Disney Co. The suit, filed Feb. 21 in Los Angeles Superior Court, has already elicited a public response from Saban, who countered Tuesday that “Morgan Stanley is overreaching in their demands.” The mastermind behind the U.S. success of “Mighty Morphin Power Rangers” and “Teenage Mutant Ninja Turtles” also claimed his “agreement with Morgan Stanley related to a different transaction.” The disagreement centers on Morgan Stanley’s role in helping Saban cash out of his 49.5 percent share of Fox Family. Saban originally enlisted the bank in fall 2000 to weigh alternatives relevant to a put option, which could be exercised only periodically, to sell his Fox Family stake to News Corp., his equal partner in the cable-and-programming venture. The bank soon came up with multistep “procedures” for evaluating Saban’s stake, one that potentially enlisted a third investment bank to arbitrate any 10 percent-plus discrepancy between the value served up by Morgan Stanley for Saban and the value derived by Bear, Stearns & Co. on behalf of News Corp. All that became moot, however, once News Corp. chief Rupert Murdoch decided to sell Fox Family outright rather than to buy Saban’s stake. Therein lies the rub. Saban’s will likely claim his obligation to Morgan Stanley did not extend to Fox Family’s sale to a third party, but rather, was limited to services connected to valuing and exercising the put option. Morgan Stanley, in contrast, alleges its role was to help Saban decide whether to cash out and, if so, to assist him by any number of means. The suit’s Exhibit A, an “engagement letter” signed by Saban and dated Jan. 8, 2001, even contains language to that effect. Its opening sentence confirms that Morgan Stanley was “engaged by you [Saban] in connection with the proposed sale (the ‘Transaction’) of the common stock of Fox Family Worldwide � owned by you and the other SEI stockholders.” The letter’s second paragraph goes on to say the bank “will provide investment advisory services to you in connection with the � put option.” But it also claims to address such specifics as the put option “without limiting the generality of the foregoing.” Sources close to Saban also cited the engagement letter but pointed to language potentially letting the investment-bank client off the hook. “In the event you [Saban] or your affiliates receive material financial consideration and/or renegotiate material terms of the stockholders agreement,” was one such passage, “in lieu of the foregoing consulting fee we will charge a ‘Negotiation Fee’ of $1 million plus an additional $1 million, which additional amount shall be paid at your discretion.” As part of its suit, Morgan Stanley provided the court with a copy of the invoice it submitted to Saban on Nov. 1, 2001. The bulk of the $11.9 million it claims is due came from an 0.811 percent “advisory fee percentage” assigned to the total $1.461 billion consideration Saban received when Disney bought Fox Family for $5.3 billion. Saban, who has 30 days to respond to the breach-of contract complaint, said in his statement that he “understands Morgan Stanley’s desire to receive a windfall.” The bank, however, declined further comment when asked about the suit Tuesday. Copyright (c)2002 TDD, LLC. All rights reserved.

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