Advanced Sports Enterprises, Inc. – Tennis and Skiing Powerhouse Head Buys Debtors’ Cycling Assets for $21.5mn in Heated Auction Marked By Accusations of Foul Play

January 17, 2019 – The Debtors notified the Court hearing the Advanced Sports Enterprises case that, further to an auction held on January 16, 2019, HTM USA HOLDINGS, LLC (“Head” or the “Buyer”) had been chosen as the successfull bidder (the “Successful Bidder”) in respect of a purchase of substantially all of the Debtors’ assets for $21.5mn [Docket No. 277], a dramatic increase on the Buyer’s opening bid of $6.0mn. The Norwalk, Connecticut based Buyer is is an affiliate of HEAD UK Ltd., the global manufacturer of skiing and tennis equipment/apparel. The Debtors are the (former) owners of numerous cycling-related brands, including Fuji Bikes, Breezer Bikes, SE Bikes, Kestrel Bikes, Tuesday Bikes, PHAT Bikes, Oval, Performance Bicycle Stores and Nasbar. It is expected that the auction results will be approved at a Court hearing scheduled for January 22, 2019.

The auction was clearly both hotly contested and acrimonious, with accusations of unsporting behavior ultimately disqualifying one bidder who had tabled a nominally superior $22.5mn bid (but what’s a bike race without a scandal?). That bidder, Ideal Bike Corporation, was accused of violating a Court order by selling bicycles containing the Debtors’ trademarks. Following a dramatic tabling of a bill of lading that purportedly proved the cheat, lender and credit bidder Wells Fargo indicated that it “would vigorously oppose the further use of cash collateral if the Advanced/Ideal Group Bidders were designated as the highest and best bids.” Game over and yellow jersey to Head.

The notice states, “Advanced Sports Enterprises, Inc. and certain of its affiliates, as debtors and debtors in possession…conducted the Auction of certain real and personal property and other related interests (the ‘Assets’) pursuant to the’Bidding Procedures Order’ (Doc. 205) on Wednesday, January 16, 2019….At the conclusion of the Auction, the Debtors designated HTM USA HOLDINGS, INC. (the ‘Buyer) as the successful bidder for the Assets.”

In further detail provided in the Debtors’ Memorandum of Law in support of the the designation of the Buyer as the Successfull Bidder [Docket No. 384], the Debtors state, “At the conclusion of the Auction, the Debtors and the Consultation Parties were faced with two bids: (i) a reliable cash bid for $21.5 million from a single reputable bidder, and (ii) a combination of four bids totaling $22.5 million, with less favorable terms, significant execution risk, and a bidder who had already violated an order of this Court. After careful consideration,the Debtors and Consultation Parties concluded that the $21.5 million bid was the highest and best. For the reasons discussed herein, that determination was appropriate and should be approved by this Court. At the Auction, there were about fifteen participating bidders for various asset lots or 

asset combinations. The Auction process lasted from approximately 10 a.m. EST on January 16, 2019, through approximately 2 a.m. EST on January 17, 2019. A transcript of the Auction proceedings is being prepared, and is anticipated to be available at the Sale Hearing.” 

While race watchers await the replay (ie, the Court transcript), the Memorandum of Law provides the following detail of an unusually gripping auction process: “Ultimately, after significant competitive bidding throughout the day for individual lots, the Auction started to consider ‘All Asset’ bids….The Debtors received bids from two bidder groups for values that would exceed the aggregate values of the then highest individual lot bids: (i) HEAD, and (ii) a consortium group of bidders comprised of Advanced Holdings Co., Ltd. and Ideal Bike Corporation (‘Advanced/Ideal’), K&B Investment Corporation (‘K&B’), Tiger Capital Group, LLC (‘Tiger’), and AMain.com, Inc. (‘AMain’, and collectively with Advanced/Ideal, K&B, and Tiger, the ‘Advanced/Ideal Group Bidders’).

After substantial bidding throughout the day, HEAD submitted a bid of $21.5 million, which the Debtors designated as the highest and best bid, with the full support of each member of the Consultation Parties…..In response to this determination, the Advanced/Ideal Group Bidders then increased their bids to an aggregate purchase price of $22.5 million…The Debtors and Consultation Parties engaged in further discussions, in an attempt to weigh whether the increased sale price outweighed the risks and concerns associated with the Advanced/Ideal Group Bidders. Initially, Wells Fargo Bank, NA (‘Wells Fargo’) opposed the bid, and the Debtors, Committee and York were undecided. However, in the course of this discussion, Counsel for the Debtors and Consultation Parties were provided with a copy of a bill of lading, discussed below, which provided documentary evidence that Ideal Bike Corporation had violated a prior order of this Court. Once this evidence was brought to light, Wells Fargo indicated that it would not consent to a sale to the Advanced/Ideal Group Bidders under section 363(f), would take the position that Advanced/Ideal was not a good faith purchaser under section 363(m), and would vigorously oppose the further use of cash collateral if the Advanced/Ideal Group Bidders were designated as the highest and best bids. Similarly, and for the same reasons, the Debtors and the other Consultation Parties (the Committee and York Street) determined that the Advanced/Ideal Group Bidders should not be designated as holding the highest and best bids. The Debtors then indicated in the Auction proceedings that HEAD continued to be the highest and best bid in their business judgment. At this point, no further bids were submitted and the Auction concluded.

 

In this case, the Debtors and the Consultation Parties concluded the Advanced/Ideal Group Bidders had not submitted the highest and best bids for the multiple reasons. They held legitimate concerns that Advanced/Ideal may be unable or unwilling to close the transaction, or may attempt to “re-trade” the deal at closing.  Additionally, HEAD is a large and reputable global corporation, who is highly likely to close on the sale transaction. By contrast, the Advanced/Ideal Group Bids consist of four separate bids, and none of the bidders has any liability to ensure that the other three bidders perform their respective obligations. The default of any one of them would render the sale process incomplete. The bids also relied upon certain inter-bidder agreements which were communicated orally and not finalized. Thus, the certainty of closing is much higher with respect to HEAD’s bid.”