November 10, 2020 – Further to an October 21st bidding procedure order [Docket No. 986] and a lengthy November 9th auction, the Debtors designated stalking horse Justice Brand Holdings LLC, an entity formed by Bluestar Alliance LLC as the successful bidder for their Justice Assets (the "Successful Bidder," $71.0mn purchase price), with JSTWHP, LLC, an affiliate of WHP Global, designated as the back-up bidder ($70.0mn purchase price) [Docket No. 1105]. A sale hearing is scheduled for November 12th.
Bluestar, which manages a portfolio of brands including Brookstone (purchased out of Chapter 11 in 2018), Hurley, bebe, kensie, Tahari and nanette lepore, grabbed the stalking horse role in October when it usurped then stalking horse Manhattan-based IHL Group with a starting bid that raised cash consideration by $9.0mn to $44.0mn.
For a second time, the Debtors have seen auction results exceed expectations; with the $71.0mn winning bid for the Justice Assets significantly topping the $44.0mn opener of the stalking horse (now Successful Bidder). Following a September 16th auction, FullBeauty Brands Operations, LLC emerged as the successful bidder for the e-commerce/intellectual property assets of the Debtors' plus-sized retailer (the "Catherines Assets") with a $40.8mn cash bid that comfortably topped the $16.0mn opening bid of eventual back-up bidder City Chic Collective USA Incorporated. That sale closed on October 13th, with the Debtors noting a gross sale price of $42,849,980.10 [Docket No. 1107].
As to the Justice Assets, the Debtors' notice of successful bidder reads in part: "….at the conclusion of the Auction, the Debtors, in consultation with their professionals, selected Justice Brand Holdings LLC, an entity formed by Bluestar Alliance LLC, as the Successful Bidder and JSTWHP, LLC, an affiliate of WHP Global, as the Back-Up Bidder…the Successful Bid includes a cash purchase price of $71,000,000.00, assumption of certain liabilities, and such other terms as announced on the record at the Auction (including a break-up fee in an amount of $750,000.00, which is payable if the Debtors close a sale of the Justice Assets with any party other than the Successful Bidder) and the Back-Up Bid includes a cash purchase price of $70,000,000.00, assumption of certain liabilities, and such other terms as announced on the record at the Auction (including a break-up fee in an amount of $500,000.00, which is payable if the Debtors close a sale of the Justice Assets with any party other than the Back-Up Bidder)."
The dual break-up fees are interesting, especially given that the Debtors had heralded the selection of the Successful Bidder as a replacement stalking horse in part because their offer did not include a break-up fee. That changed during the course of what was a long and occassionally testy 13-hour auction, with each of the two bidding parties asking for and receiving break-up fees in contravention of the established bidding procedures, those effectively being amended on the fly to permit the break-up arrangements.
In a declaration in support of the sale [Docket No. 1109, which attaches the auction transcript], the Debtors' investment banker notes: "On November 2, 2020, the Debtors received a bid from JSTWHP, LLC, an affiliate of WHP Global (‘JSTWHP’) to purchase the Justice Assets for approximately $50.6 million, subject to certain inventory adjustments. After negotiations between JSTWHP and the Debtors (with the assistance of their respective advisors), the Debtors designated JSTWHP’s bid as a ‘Qualified Bid.’ Accordingly, the Debtors held an Auction with JSTWHP’s Qualified Bid as the starting bid.
As the Auction progressed, the Stalking Horse Bidder and JSTWHP submitted bids that were conditioned on the Debtors’ agreement to provide a break-up fee….In consultation with their advisors and the consultation parties, the Debtors agreed to provide the requested break-up fees to allow the Auction to continue by encouraging the bidders to increase their bids."
Further Background
On October 21st, the Court hearing the Ascena Retail Group cases issued an order approving revised bidding procedures that reflect the Debtors' last minute swap of stalking horses; with Justice Brand Holdings LLC, an entity formed by Bluestar Alliance LLC (“Bluestar”) now replacing Premier Brands Justice LLC, an acquisition entity that had been created by Manhattan-based IHL Group [Docket No. 986]. The Bluestar APA is attached to the order at Exhibit A-2.
In a declaration in support of the revised motion filed by the Debtors' investment banker, the change in stalking horse is summed up as follows: "the Debtors concluded that the stalking horse bid (the 'Justice Brand Stalking Horse Bid') proposed by Justice Brand Holdings LLC ('Justice Brand'), an entity formed by Bluestar, presented certain advantages over the Original Stalking Horse Bid, including, among other things: (i) a Cash Purchase Price for the intellectual property of $44 million (approximately $9 million more than the Original Stalking Horse Bid); and (ii) significantly reduced bid protections, which include no break-up fee and expense reimbursement in an amount up to $200,000…the Debtors have, thus, determined that the Justice Brand Stalking Horse Bid is higher and better than the Original Stalking Horse Bid."
The Debtors' revised motion adds: "On October 13, 2020, the Debtors filed the Debtors’ Motion for Entry of an Order (I) Establishing Bidding Procedures and Granting Related Relief, and (II) Approving the Sale of Justice Assets Free and Clear of Liens, Claims, Encumbrances, and Interests [Docket No. 901] (the ‘Initial Motion’), seeking the Court’s approval of: (a) the bidding procedures for the sale of the Justice Assets (as defined herein); (b) the proposed dates and deadlines in connection therewith (including a bid deadline, objection deadlines, the date of the auction, and the hearing dates); (c) procedures for the assumption or assumption and assignment of certain executory contracts and leases and the resolution of related cure amounts; (d) the form and manner of notice of each of the foregoing; and (e) certain stalking horse protections.
The Debtors have undertaken an extensive sale and marketing process of the Justice Assets that began shortly after the Petition Date. As part of that process, the Debtors, through their investment banker, engaged in frequent communications with potential purchasers, including Bluestar Alliance LLC ( ‘Bluestar ‘), a leading brand management company, Premier Brands Justice LLC ( ‘Premier Brands ‘), and certain other parties. The Debtors initially selected Premier Brands as its stalking horse bidder for the sale of the Justice Assets, and its bid as the initial stalking horse bid (the ‘Original Stalking Horse Bid ‘), and filed the Initial Motion to seek approval thereof. However, shortly thereafter, the Debtors received an alternative proposal for the Justice Assets from Bluestar, which was higher and better than the Original Stalking Horse Bid. As a result, the Debtors requested an adjournment of the hearing on the Initial Motion to finalize the Stalking Horse Purchase Agreement (as defined herein).
As set forth in greater detail below, Justice Brand Holdings LLC ( ‘Justice Brand ‘ or the ‘Stalking Horse Bidder ‘), an entity formed by Bluestar, has offered to purchase the Justice Assets (the ‘Stalking Horse Bid ‘) pursuant to the terms of the Stalking Horse Purchase Agreement. The Stalking Horse Bid and the Stalking Horse Purchase Agreement present significant advantages to the Debtors’ estates over the Original Stalking Horse Bid, including: (i) an increased Cash Purchase Price of $44 million (which is $9 million more than the Base Amount (as defined in the Original Stalking Horse Bid)) for the Justice Assets; (ii) significantly reduced bid protections from those under the Original Stalking Horse Bid as a result of the elimination of a $1,050,000 break-up fee and a lower expense reimbursement of up to $200,000 (a reduction from $450,000 under the Original Stalking Horse Bid) (the ‘Stalking Horse Protections ‘); (iii) an elimination of any requirements for a transition services agreement following Closing of the Sale; (iv) the assumption of liability under certain postpetition purchase orders for goods to be delivered during the period beginning on December 1, 2020 and ending on April 30, 2020, up to an aggregate cap of $20 million; and (v) terms that are, in the Debtors’ business judgment, better than the terms reflected in the Original Stalking Horse Bid. The Stalking Horse Bid also contemplates a significantly higher cash deposit of $10 million (which is a $6.5 million increase from the deposit amount under the Original Stalking Horse Bid).
About Bluestar
According to Bluestar: "Founded by Joseph Gabbay and Ralph Gindi in 2006, Bluestar owns, manages, and markets a portfolio of consumer brands that span across many tiers of distribution from luxury to mass market. This portfolio consists of major department store retail brands including Brookstone, Tahari, Bebe, Kensie, Catherine Malandrino, Nanette Lepore, Joan Vass, Michael Bastian, English Laundry and Limited Too.
Each brand is uniquely positioned maintaining the brand heritage and equity, considering new categories and current tiers of distribution. Bluestar’s current network of international and domestic partners offers the opportunity to take a niche brand to a visible worldwide lifestyle brand. Since its inception, Bluestar has acquired select brands with current retail sales exceeding $3.0 billion. The company manages a current portfolio of over 300 licensees and a growing branded retail platform of over 100 stores worldwide throughout North America, Europe, Australia, South America, Asia, United Arab Emirates, Middle East, India and Russia."
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The post Ascena Retail Group, Inc. – Lengthy (and Occassionally Fractious) Auction Sees Debtors Vastly Exceed Pre-Auction Estimates, With Bluestar Topping WHP Global with $71mn Winning Cash Bid appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.