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Enjoy Technology, Inc. – U.S. Trustee Objects to Bidding Procedures Motion Citing Proposed Bidder Protections for Presumptive Stalking Horse Asurion, Wants to See Executed APA and Have Court Assess Net Benefit of Protections for Debtors’ Estates

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July 15, 2022 – The U.S. Trustee assigned to the Debtors’ cases (the “U.S. Trustee”) has objected to proposed bidding procedures [Docket No. 137] arguing that the Debtors' presumptive stalking horse Asurion, LLC (“Asurion,” also the Debtors’ DIP lender) should not be the beneficiary of bidder protections until an executed asset purchase agreement has been filed with the Court and interested parties afforded an opportunity to review that APA. Even then, the U.S. Trustee continues, (i) bidder protections should exclude any reimbursement for diligence already performed by Asurion prepetition and (ii) the Court should holistically review the proposed protections to assess their net benefit to the Debtors' estates.

On July 3rd, the Debtors filed a motion seeking approval for proposed bidding procedures in relation to the sale of substantially all of their assets; with the expectation that Asurion would serve as stalking horse* and that their sale process would conclude at an August 12th hearing [Docket No. 86]. That motion also sought bidder protections that included a 3.0% break-up fee and a 0.5% expense reimbursement.

* As it stands, the Debtors have a non-binding letter of intent with Asurion and had flagged their expectation that an asset purchase agreement would be filed by July 14th. That did not happen.

A hearing on the objection is scheduled for July 21, 2022.

U.S. Trustee Objection

The objection states, “The Debtor should not be permitted to award bid protections to Asurion or any other potential stalking horse until a bona fide asset purchase agreement is finalized and signed and that fully-executed asset purchase agreement, memorializing the purchaser’s bid, is filed with the Court and a hearing to consider allowance of any proposed bid protections with the opportunity for parties in interest to object to same is set.

In addition, Asurion should not be awarded any bid protections or expense reimbursement for due diligence. The record in this case clearly indicates that Asurion performed its due diligence pre-petition in connection with its negotiations with the Debtors concerning the purchase of the Debtors’ assets.

The analysis of bid protections under Section 503(b) ‘must be made in reference to general administrative expense jurisprudence. In other words, the allowability of bid protections, like that of other administrative expenses, depends upon the requesting party’s ability to show that the fees were actually necessary to preserve the value of the estate.’

A break-up fee may provide a benefit to the estate where (1) assurance of the breakup fee promotes more competitive bidding, such as by inducing a bid that otherwise wouldn’t have been made, (2) availability of the break-up fee induces a buyer to perform diligence and set a floor price.

Even if a break-up fee would benefit the estate, the Court is not required to approve it…The Court must determine, based on the totality of the circumstances of the case, ‘whether the proposed fee’s potential benefits to the estate outweigh any potential harms, such that the fee is actually necessary to preserve the value of the estate.’ The party requesting bid protections has the burden of showing that the fee is actually necessary to preserve the value of the estate. 

In sum, the Debtors’ request for authority to award bid protections should be denied as it undermines this Court’s control of administrative expenses.”

Sale Background

The Debtors' motion provides: "The Debtors file this Motion to approve the Bidding Procedures with the expectation that Asurion, LLC ('Asurion'), the Debtors’ DIP Lender, will serve as the Stalking Horse Bidder for the sale of substantially all of the Debtors’ U.S. assets. Pursuant to the Interim DIP Order, the Debtors shall file a Stalking Horse Agreement with Asurion on or before July 14, 2022, in which case, the Debtors would seek approval of the Stalking Horse Bid Protections and
authority to enter into the Stalking Horse Agreement subject to higher and better bids and the Sale Hearing pursuant to the proposed Bidding Procedures. The Debtors expect that the postpetition sale and marketing process will build upon the prepetition marketing process overseen by Centerview. Pending the approval of a sale, the Debtors will continue to operate in the ordinary course of business and provide uninterrupted service.

Prepetition Marketing Efforts and Pivot to In-Court Asurion Offer

The mortion continues: "…in April 2022, the Debtors determined that strategic alternatives were necessary to preserve their liquidity and maintain ongoing operations. Starting in May 2022, the Debtors ran a targeted marketing process for a sale of substantially all of their assets. With the assistance of Centerview Partners, LLC ('Centerview'), the Debtors prepared a list of approximately twenty-three (23) potential acquirers that were considered the most likely participants in a sale process. Following the initial outreach to the identified twenty-three (23) parties, the Debtors provided certain information to these parties in order to gauge their interest prior to executing a non-disclosure agreement. Five (5) parties entered into non-disclosure agreements with the Debtors.  

Following the execution of non-disclosure agreements, the Debtors received two (2) letters of intent, from Asurion and one other counterparty. On June 13, 2022, the Debtors executed a letter of intent with the non-Asurion counterparty to complete an out-of-court transaction. However, on June 17, 2022, that counterparty informed the Debtors that it would not proceed with the transaction and withdrew its offer. On June 19, 2022, the Debtors agreed to pursue a nonbinding proposal from Asurion for a sale of substantially all of the Debtors’ U.S. assets through a sale pursuant to section 363 of the Bankruptcy Code, and signed a letter of intent with Asurion on June 19, 2022, which was later revised and superseded by a letter of intent dated as of June 29, 2022 (the 'Asurion LOI')."

Case Background

On June 30, 2022, Enjoy Technology, Inc. and two affiliated debtors (NASDAQ: ENJY; “Enjoy” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $111.7mn and estimated liabilities of $70.0mn. At filing, the Debtors cited "larger-than-expected [SPAC/Merger] redemptions," the supply chain crisis and tightening equity markets as compelling them to seek bankruptcy shelter.

* The Debtors’ most recent 10-K provides the following as to the business model/markets/key partnerships: “We have contractual partnerships, commercial relationships and/or authorized dealer agreements with leading telecommunications and technology companies (such arrangements, ‘Business Partnerships’), including AT&T in the US, BT-EE (British Telecom) in the UK, Rogers in Canada and Apple in select US cities (such companies, ‘Customers’ or ‘Business Partners’). We provide the commerce-at-home experience to our Business Partners’ Consumers. Enjoy delivers a broad assortment of telecommunications and technology products and accessories for our Business Partners. As of December 31, 2021, our top two Business Partners in the U.S. and the U.K. accounted for 62% and 15% of our revenue, respectively.”

Background

The Debtors' motion provides: "The Debtors file this Motion to approve the Bidding Procedures with the expectation that Asurion, LLC ('Asurion'), the Debtors’ DIP Lender, will serve as the Stalking Horse Bidder for the sale of substantially all of the Debtors’ U.S. assets. Pursuant to the Interim DIP Order, the Debtors shall file a Stalking Horse Agreement with Asurion on or before July 14, 2022, in which case, the Debtors would seek approval of the Stalking Horse Bid Protections and
authority to enter into the Stalking Horse Agreement subject to higher and better bids and the Sale Hearing pursuant to the proposed Bidding Procedures. The Debtors expect that the postpetition sale and marketing process will build upon the prepetition marketing process overseen by Centerview. Pending the approval of a sale, the Debtors will continue to operate in the ordinary course of business and provide uninterrupted service.

Prepetition Marketing Efforts and Pivot to In-Court Asurion Offer

The mortion continues: "…in April 2022, the Debtors determined that strategic alternatives were necessary to preserve their liquidity and maintain ongoing operations. Starting in May 2022, the Debtors ran a targeted marketing process for a sale of substantially all of their assets. With the assistance of Centerview Partners, LLC ('Centerview'), the Debtors prepared a list of approximately twenty-three (23) potential acquirers that were considered the most likely participants in a sale process. Following the initial outreach to the identified twenty-three (23) parties, the Debtors provided certain information to these parties in order to gauge their interest prior to executing a non-disclosure agreement. Five (5) parties entered into non-disclosure agreements with the Debtors.  

Following the execution of non-disclosure agreements, the Debtors received two (2) letters of intent, from Asurion and one other counterparty. On June 13, 2022, the Debtors executed a letter of intent with the non-Asurion counterparty to complete an out-of-court transaction. However, on June 17, 2022, that counterparty informed the Debtors that it would not proceed with the transaction and withdrew its offer. On June 19, 2022, the Debtors agreed to pursue a nonbinding proposal from Asurion for a sale of substantially all of the Debtors’ U.S. assets through a sale pursuant to section 363 of the Bankruptcy Code, and signed a letter of intent with Asurion on June 19, 2022, which was later revised and superseded by a letter of intent dated as of June 29, 2022 (the 'Asurion LOI')."

About the Debtors

According to the Debtors: “Enjoy is a technology-powered platform reinventing "Commerce at Home" to bring the best of the store directly to customers. Enjoy operates a Smart Last Mile™ solution, which includes a network of Mobile Stores with significant inventory and trained Experts that bring greater speed, convenience and personalized experiences to customers. Co-founded by Apple retail strategist Ron Johnson, Enjoy has pioneered a new retail channel that can do everything    that a traditional retail experience offers, but better. Enjoy has formed multi-year partnerships with the world’s leading consumer brands to bring the products, services and subscriptions that customers love through the door of their homes with superior comfort and convenience. Headquartered in Palo Alto, CA, Enjoy currently operates in the United States, Canada and the United Kingdom. ”

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The post Enjoy Technology, Inc. – U.S. Trustee Objects to Bidding Procedures Motion Citing Proposed Bidder Protections for Presumptive Stalking Horse Asurion, Wants to See Executed APA and Have Court Assess Net Benefit of Protections for Debtors’ Estates appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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