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June 13, 2023 – Further to an April 25th bidding procedures order [Docket No. 92], and in advance of an oft-extended June 12th deadline, the Debtors notified the Court that they had selected Overstock.com, Inc. ($21.5 cash bid) as their stalking horse bidder in respect of a sale of substantially all of BBBY's intellectual property with the significant exclusion of IP related to the Debtors' “HARMON” and “buybuyBaby” brands [Docket No 708, with a stalking horse APA attached at Exhibit A].
Key Terms of Stalking Horse APA
- Sellers: Bed Bath & Beyond Inc., a New York corporation
- Buyer: Overstock.com, Inc., a Delaware corporation
- Assets: Intellectual property related to the “Business,” with the “HARMON” and “buybuyBaby” brands foremost amongst the “Excluded Businesses” carve out
- Purchase Price: $21.5mn (cash)
- Deposit: 10% of the Cash Consideration (i.e., $2.15mn)
- Bid Protections: (i) a Break-Up fee equal to 2% of the proposed Purchase Price and (ii) an Expense Reimbursement of up to 2% of the proposed Purchase Price.
Updated Key Dates [see Docket No. 692 for extended deadlines]
Bidding Procedures Motion
The motion [Docket No. 29] states, “…the prepetition sale process proved unsuccessful, producing limited interest in a viable proposal to acquire the Debtors’ assets. Through the filing of these chapter 11 cases and this Motion, the Debtors seek to continue the process to sell any portion, all, or substantially all of the Debtors’ Assets, either as a going concern or as a liquidation (whichever is most value maximizing to the Debtors’ estates) to one or more third-party buyers. That process will run in tandem with the continued liquidation of the business, which is being implemented with the support of Hilco Merchant Resources, LLC (‘Hilco’) pursuant to the wind-down procedures…”
[t]he Debtors commenced these chapter 11 cases following a year of financial tumult. Poor earnings reports in early 2022 led to multiple downgrades to the Debtors’ credit rating, and a subsequent purchase and sale of a massive stake in Bed Bath & Beyond by ‘meme’ stock investors sent share prices plummeting. These problems were exacerbated by the shifting consumer behavior in the wake of the COVID-19 pandemic and the supply chain crisis that followed. As the Debtors’ liquidity picture worsened over the past twelve months, efforts by prior management to reorient the Debtors’ business around private-label products proved unsuccessful, leading to strained relationships with the Debtors’ key stakeholders, including customers and vendors. Despite the best efforts of the new management team to right the ship, facing a severely constricted liquidity picture, outstanding debt defaults, and rapidly declining year over year sales, the Debtors determined to evaluate all strategic alternatives, including a sale of the Debtors’ businesses.
… The Debtors commenced these chapter 11 cases with committed postpetition financing in the form of the DIP Facility, granting the Debtors with runway to pursue a sale transaction while in bankruptcy. Thus, time is of the essence. Pursuant to the DIP Credit Agreement, the Debtors must satisfy certain milestones (the ‘DIP Milestones’) for the sale of their Assets t, including:
- any bid deadline must be no more than 35 days from the Petition Date.
- The Bankruptcy Court shall have entered an order or orders approving the sale(s) of all or substantially all of the Debtors’ assets no later than 45 days from the Petition Date.
Conducting a thorough yet expedited bidding process and consummating a Sale Transaction are vitally important to the Debtors’ efforts to maximize value by selling the Assets. Failure to comply with the DIP Milestones would place the Debtors in default under the DIP Credit Agreement. Such a result can, and should, be avoided in order to provide the Debtors with the best chance to maximize the value of their estates through the sale of some or all of the Assets. Such a Sale Transaction would benefit not only the Debtors, but their vendors, lenders, dedicated employees, and other key stakeholders, as well.
To preserve the value of the Debtors’ estates—and to offer the Debtors a chance to increase the ultimate value provided by the monetization and disposition of their assets—the Debtors propose the Bidding Procedures contemplated herein. The Bidding Procedures provide substantial flexibility with respect to the structure of any transaction(s). The Debtors will consider all viable options in accordance with the Bidding Procedures before determining if selling Assets will, in their business judgment, maximize value for the estate. Any delay would hinder the Debtors’ efforts to maximize value.”
In a declaration in support of the motion [Docket No. 29] the Debtors’ investment banker (David Kurtz of Lazard) states, “In August 2022, the Debtors engaged Lazard to pursue a debt exchange transaction to address the Senior Unsecured Notes. Specifically, Lazard analyzed and developed potential offers to exchange any and all of the then-outstanding Senior Unsecured Notes via a public exchange with the goal of reducing the Company’s debt and interest expense and addressing the near-term maturity of the 2024 Notes. In addition, Lazard assisted the Company with negotiating and implementing two private debt-for-equity exchanges in November 2022. As described in the First Day Declaration, the Company terminated the public exchange transaction on January 5, 2023.
In December 2022, Lazard commenced a process to solicit interest in a going concern sale transaction that could be effectuated in chapter 11, as well as to solicit interest in providing post-petition financing. Lazard initially reached out to a group of potential financial and strategic investors who are experienced in investing in the retail sector, operational turnarounds and/or distressed situations and held meetings with certain of those investors in late December 2022. This initial group was comprised of approximately twenty investors, nine of which had executed confidentiality agreements by the second week of January 2023. Those parties included various financial sponsors, strategic buyers, and money center banks. Several of the parties contacted could have potentially been acquirers of some or all of the Debtors businesses, as well as providers of post-petition financing to fund a going-concern reorganization.
In mid-January 2023, efforts to identify a potential plan sponsor and investors to provide post-petition financing intensified, the universe of potential investors that Lazard engaged with expanded, and diligence continued. The Debtors and Lazard shared diligence materials and financial projections, discussed the structuring of potential transactions, and conducted in-person or telephonic meetings with certain of these parties and the Debtors’ management. The Debtors also received unsolicited inbounds from potential third-party financing sources who expressed some level of interest in potentially providing post-petition financing, which Lazard explored. At the same time, the Debtors’ liquidity position was deteriorating rapidly. By the end of January 2023, as the number of investors that Lazard was engaging with had increased and as investors continued to conduct diligence, it became apparent that the process was unlikely to yield a plan sponsor that would facilitate a going-concern reorganization. By that time, Lazard had engaged with approximately sixty potential investors to solicit interest in serving as a plan sponsor, acquiring some or all of the Debtors’ assets or businesses, or providing post-petition financing. Thirty of those parties had executed confidentiality agreements.
In January 2023, the Debtors executed a second engagement letter with Lazard to broaden the scope of the engagement, including to explore a potential sale and restructuring transaction that could be implemented through chapter 11. Over the past several months, Lazard has worked closely with the Debtors’ management and other professionals retained by the Debtors with respect to the Debtors’ restructuring efforts and has become well-acquainted with the Debtors’ capital structure, financing needs, and business operations.
In mid-April 2023, Lazard once again reengaged with potential investors in an effort to identify a plan sponsor in connection with a chapter 11 restructuring or a provider of postpetition financing. In connection with that process, Lazard engaged with over 30 parties to assess interest in acquiring all or part of the business or providing DIP financing and no viable buyer was identified and no investors were willing to provide actionable DIP financing proposals. In total, Lazard engaged with over 100 potential investors since December 2022; over 50 of those parties executed NDAs. As set forth in my declaration in support of the postpetition financing motion, the Debtors again found themselves in an untenable liquidity position, necessitating the commencement of these chapter 11 cases.
While the Debtors did not receive any actionable offers for an acquisition of their Assets before the Petition Date, the Debtors and Lazard are continuing their efforts to market all or a portion of the Assets (in whole or in part) and, if appropriate, enter into an agreement with a Stalking Horse Bidder. The Debtors are committed to achieving the highest or otherwise best bid for some or all of the Debtors’ Assets by marketing those Assets pursuant to the Bidding Procedures, and, if necessary, conducting an auction for such assets as well as any additional assets of the Debtors. I am confident that the Bidding Procedures and the other relief requested in the Motion, including setting a schedule for an auction (if necessary), represent the last, best chance for the Debtors to realize a going concern value for some or all of their Debtors’ Assets. I believe the proposed Bidding Procedures will facilitate the sale of the Debtors’ Assets, including the Debtors’ trademarks, for the highest or otherwise best value, and potentially preserve jobs for their dedicated employees. The Debtors anticipate that any stores which a potential purchaser does not seek to acquire will be wound down through store closing sales. I believe that the proposed Bidding Procedures provide for substantial flexibility with respect to the structure of any Sale Transaction, and the Bidding Procedures are the best path to garner interest in the Assets and maximize value for all stakeholders.”
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