January 7, 2021 – Further to the Court's September 25, 2020 bidding procedures order [Docket No. 693] and following successful mediation efforts overseen by Judge Isgur; the Debtors notified the Court that they have selected successful bidders for their Wendy's and Pizza Hut assets (together, the "WholeCo Assets"). Those bidders are (i) the stalking horse bidder Wend American Group LLC and Hut American Group LLC (each affiliates of Flynn Restaurant Group LP, and collectively, “Flynn” of the "Stalking Horse Bidder") which will purchase the Pizza Hut Assets and half of the Wendy's Assets for $552.5mn and (ii) Wendy's International, LLC, together with a group of pre-qualified franchisees (the "Wendy's Purchaser") which will purchase the balance of the Wendy's Assets for $248.2mn.
The Flynn APA is attached to the notice as Exhibit A and the Wendy’s APA is attached as Exhibit B. A sale hearing is scheduled for January 15th with the Debtors' scheduled Plan confirmation hearing now slipping from January 15th until January 21st.
The total consideration for the WholeCo Assets is $801.0mn; which although lower than the $816.0mn cash offer offered earlier by stalking horse Flynn in respect of the WholeCo Assets, comes with considerably greater deal certainty (and reduced risk as to several break-up fees, including a 1.25% fee should franchisor consent be withheld), given the opposition….and then competing bid… of franchisor Wendy's to the initially proposed Flynn transaction.
In a press release announcing the asset sales, the Debtors noted: “following a successful mediation process, the Company has reached separate asset purchase agreements with Flynn Restaurant Group (‘Flynn’) and Wendy’s International LLC (‘Wendy’s’) which would result in the sale of substantially all of NPC’s assets and pave the way for NPC to complete its chapter 11 restructuring.
The combined purchase price of the two sale transactions is approximately $801 million. The asset purchase agreements filed with the Court today provide for the following:
- Flynn will acquire over 925 of NPC’s Pizza Hut restaurants; about half of NPC’s Wendy’s restaurants; and substantially all of NPC’s shared service assets.
- Wendy’s will acquire NPC’s remaining Wendy’s restaurants and assign the right to acquire restaurants to five current Wendy’s franchisees (the ‘Wendy’s Purchasers,’ and together with Flynn, the ‘Purchasers’).
Subject to Court approval, the execution of definitive documentation, and the approval of certain matters subject to Wendy’s and Pizza Hut’s consent of Flynn Restaurant Group as a new franchisee, the sale transactions are expected to close by the end of the second quarter of 2021."
The Debtors' notice provides the following background: "In accordance with the Bid Procedures Order, the Debtors accepted a stalking horse bid (the 'Stalking Horse Bid') submitted by Wend American Group LLC and Hut American Group LLC, which is led by Flynn Restaurant Group LP (collectively, the 'Stalking Horse Purchaser'), for a WholeCo Sale Transaction (the 'Stalking Horse Transaction') as set forth in the asset purchase agreement with the Stalking Horse Bidder annexed as Exhibit B to the Stalking Horse Motion. On November 14, 2020, the Bankruptcy Court entered the Order (I) Approving the Debtors' Selection of a Stalking Horse Bidder, (II) Approving Bid Protections in Connection Therewith, and (III) Granting Related Relief [Docket No. 1051] (the 'Stalking Horse Order').
On November 23, 2020, the Debtors filed the Notice of Cancellation of Auctions [Docket No. 1127] cancelling the Wendy's, Pizza Hut, and WholeCo Auctions.
On December 9, 2020, the Bankruptcy Court entered the Agreed Mediation Order Appointing Judge Marvin Isgur as Mediator as to the Stalking Horse Bid and Wendy’s Franchisor Consent [Docket No. 1195], and the Debtors, the Creditors' Committee, the Stalking Horse Bidder, the Ad Hoc Priority/1L Group, and the Wendy's Franchisor (together, the 'Parties') participated in a successful mediation pursuant to which the Parties consensually resolved certain outstanding issues with respect to the Stalking Horse Transaction and the rights of the Wendy's Franchisor (including contractual rights) with respect thereto (the 'Mediation').
In accordance with the Bid Procedures and as a result of the Mediation, the Debtors hereby designate (i) the Stalking Horse Bidder and (ii) Wendy's International, LLC, together with a group of pre-qualified franchisees (the 'Wendy's Purchaser'), as Successful Bidders (and each of the Stalking Horse Purchaser and the Wendy's Purchaser, a 'Successful Bidder') for substantially all of the WholeCo Assets pursuant to (x) that certain Amended and Restated Asset Purchase Agreement, dated as of January 7, 2021, by and among the Debtors and the Stalking Horse Purchaser annexed hereto as Exhibit A (the 'Amended Stalking Horse Purchase Agreement'), and (y) that certain Asset Purchase Agreement, dated as of January 7, 2021 by and among NPC Quality Burgers, Inc. and the Wendy's Purchaser (the 'Wendy's Purchase Agreement'), annexed hereto as Exhibit B (together with the Amended Stalking Horse Purchase Agreement, the 'Successful Bids,' and each a 'Successful Bid).
Pursuant to the Amended Stalking Horse Purchase Agreement, the Stalking Horse Purchaser has agreed to purchase the Pizza Hut Assets and the Wendy's Assets in the Salt Lake City, Central Maryland, Baltimore North, and Baltimore South markets for a base purchase price of $552,550,000, together with additional amounts enumerated at Section 3.01 of the Amended Stalking Horse Purchase Agreement. Pursuant to the Wendy's Purchase Agreement, the Wendy's Purchaser has agreed to purchase the Wendy's Kansas City Business, North Greensboro Business, South Greensboro Business, Raleigh Business and Pennsylvania Business (each as defined in the Wendy's Purchase Agreement) for a base purchase price of $248,250,000, together with additional amounts enumerated at Section 3.01 of the Wendy's Purchase Agreement."
Key Terms of the Flynn Amended Stalking Horse APA:
- Seller: NPC Quality Burgers, Inc., a Kansas corporation, NPC International, Inc., a Kansas corporation, NPC Restaurant Holdings, LLC, a Delaware limited liability company, NPC International Holdings, LLC., a Delaware limited liability company, NPC Holdings, Inc., a Delaware corporation, NPC Restaurant Holdings I LLC, a Delaware limited liability company and NPC Restaurant Holdings II LLC, a Delaware limited liability company.
- Purchaser: Hut American Group LLC and Wend American Group LLC
- Assets: Pizza Hut Assets and the Wendy's Assets in the Salt Lake City, Central Maryland, Baltimore North, and Baltimore South markets.
- Purchase price: The aggregate consideration to be paid by Buyer for the sale of all of the Transferred Assets and the obligations of Seller set forth in this Agreement shall be (A) payment of an amount in cash equal to the sum of (i) $552,550,000 (the “Base Value”), plus (ii) Store Cash, plus (iii) the Inventory Value; plus (iv) the Prepaids Value, plus (v) an amount equal to $8.0mn (such amount representing the agreed value of the “construction in process”), plus (vi) the Seller Proration Amount, if any, minus the aggregate amount of the credits set forth in Section 3.01(b) (such aggregate amount, the “Purchase Price”), and (B) the assumption of the Assumed Liabilities.
- Bid protections: Break-up fee of 2.5% of base value; expense reimbursement of $1.5mn; Franchisor Consent Break-up Fee of 1.25% of the base value
Key Terms of the Wendy’s purchase agreement:
- Seller: NPC Quality Burgers, Inc.
- Purchaser: Wendy’s International, LLC
- Assets: Wendy's Kansas City Business, North Greensboro Business, South Greensboro Business, Raleigh Business and Pennsylvania Business.
- Purchase Price: The aggregate consideration to be paid by Buyer for the sale of all of the Transferred Assets and the obligations of Seller set forth in this Agreement shall be (A) payment of an amount in cash equal to the sum of (i) $248,250,000 (which amount includes the Wendy’s Settlement Amount), plus (ii) Store Cash, plus (iii) the Inventory Value; plus (iv) the Prepaids Value, plus (v) the Construction in Process Amount, plus (vi) the Seller Proration Amount, if any, minus (y) the aggregate amount of the credits set forth in Section 3.01(b) (such aggregate amount, the “Purchase Price”), and (B) the assumption of the Assumed Liabilities.
Background
Initial Flynn Bid
On November 14, 2020, the Court issued an order approving (i) the selection of Wend American Group LLC and Hut American Group LLC as the stalking horse bidder for the Debtors’ WholeCo Assets and (ii) bidder protections for the stalking horse [Docket No. 1051].
The initial Flynn asset purchase agreement (the “Initial Flynn APA”) which memorializes the terms of an $816.0mn cash offer, was attached to Docket No. 994 as Exhibit B.
Conditions in the Initial Flynn APA included requirements that (i) the Franchisors consent to the agreement, (ii) Flynn deliver to the Debtors commitment letters evidencing adequate financing by November 10, 2020 and (iii) Flynn deposit $81.6mn of the proposed purchase price into escrow by November 10, 2020.
The Initial Flynn APA further noted that Flynn has received draft commitment letters for $394.0mn in equity financing from AAG Managers LLC and Main Post Growth Capital II, L.P., MPGC II FRG Co-Investment, L.P., MP FRG Splitter, L.P. and MP FRG Co-Investment Splitter, L.P. and from Flynn Restaurant Group L.P. (collectively the “Equity Investors”) and a draft commitment for $370.0mn in debt financing.
In addition, bid protections included (i) a $20.4mn break-up fee (i.e. 2.5%), (ii) a $1.5mn expense reimbursement and (iii) a $10.2mn (i.e. 1.25% of the “Base Value”) franchisor consent break-up fee, to be paid in certain circumstances where Flynn has not been able to obtain franchisor consent and the Debtors’ assets are otherwise sold to a third party.
In a November 6th press release heralding the selection of Flynn, the Debtors provide: “Flynn has agreed to acquire substantially all of NPC’s assets in a sale process under Section 363 of the U.S. Bankruptcy Code. The agreement is subject to Court approval and any higher or better offers pursuant to the bidding procedures and deadlines previously approved by the Court.
Under the terms of the APA, Flynn would acquire all of NPC’s more than 1,300 Pizza Hut and Wendy’s restaurants across the country, as well as NPC’s Shared Services assets for $816 million. Flynn has committed to offer employment to substantially all of NPC’s more than 30,000 full and part time employees.”
Wendy's Objection
On November 18, 2020, the Company submitted a consortium bid together with a group of pre-qualified franchisees to acquire NPC’s Wendy’s restaurants. If the consortium bid is ultimately successful, the Company expects that several existing and new franchisees would be the ultimate purchasers of most of the NPC markets, with the Company acquiring at most one or two markets. The Company remains committed to maintaining its ownership level of approximately 5% of the total Wendy’s system.
In a November 12th objection (which was over-ruled), Wendy's objected to the designation of Flynn as a stalking horse horse in respect of a WholeCo Assets sale (in particular "bid-chilling" bidder protections agreed with Flynn) and made it clear that it "has not consented to Flynn becoming a franchisee." The Wendy's objection stated: "Wendy’s respectfully submits that the Court should not approve the proposed Bid Protections.
About the Debtors
The Debtors are the largest franchisee of any restaurant concept in the U.S., based on unit count, according to the 2019 “Top 200 Restaurant Franchisees” by the Restaurant Finance Monitor, and are the fifth largest restaurant unit operator, based on unit count, in the U.S., operating both Pizza Hut™ and Wendy’s™ locations.
With their headquarters located in Leawood, Kansas, and a shared services center located in Pittsburg, Kansas, the Company has a total of approximately 7,500 full time employees and approximately 28,500 part-time employees, and operate in 30 states and District of Columbia. As franchisees of the Pizza Hut and Wendy’s brand, the Company’s performance is inextricably tied to the overall performance of each brand, and although the Company continually seeks to optimize its businesses as discussed more fully below, there are certain headwinds facing the broader Pizza Hut system that NPC cannot directly combat without brand support.
As of the Petition Date, the Debtors operated 1,227 Pizza Hut units in 27 states, with significant presence in the Midwest, South, and Southeast.
As of the Petition Date, the Debtors operated 393 Wendy’s restaurants in eight states and the District of Columbia.
The sale hearing for both the transactions is scheduled for January 15, 2021, with objections due by January 11, 2021.
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The post NPC International, Inc. – Further to Successful Mediation Efforts, Designates Flynn Restaurant Group ($552.5mn) and Wendy’s Intl ($248.2mn) as Successful Bidders, Schedules January 15th Sale Hearing and Postpones Confirmation Hearing Until January 20th appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.