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July 23, 2020 – Further to their July 16th bidding procedures and sale motion [Docket No. 154], the Debtors have filed a supplement notifying the Court that they have entered into a $305.0mn stalking horse agreement with SPARC Group LLC (the “Stalking Horse Bidder”) [Docket No. 204]. The asset purchase agreement (the “APA”) governing the terms of the sale is attached to the motion as Exhibit A. The Stalking Horse Bidder is owned by mall owner Simon Property Group ("SPG") and Authentic Brands Group ("ABG"), the latter being the provider of the Debtors' debtor-in-possession ("DIP") financing which may be credit bid and deducted from the $305.0mn purchase price. The Debtors' motion also references an "equity commitment letter" already executed by SPG and ABG (prominently referred to in the APA's recitals and supposedly attached to the APA at Exhibit J, but conveniently omitted for now) which will have been a significant factor in the Debtors' current assessment of competing bids and will be of continuing interest to potential third party bidders.
In a press release announcing the selection of the Stalking Horse Bidder, the Debtors commented: "Under the terms of the agreement, SPARC intends to purchase substantially all the Company’s global business operations as a going concern for $305 million. SPARC has also committed to acquiring at least 125 Brooks Brothers retail locations. The agreement is subject to court approval and any higher or better offers as part of the Company’s ongoing auction process."
Commenting on the development, competing bidder WH Global appeared sanguine, with its Chairman Yehuda Shmidman, stating: “It’s early innings in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by Oaktree Capital and BlackRock, is a bidder. We are big believers in the power of the Brooks Brothers brand, the global footprint and the management team. We’re looking forward to competing at the auction — that’s when the future of Brooks Brothers will be determined.”
Early innings perhaps, but one of those inning just cost any further interested bidder $11.125mn, ie the aggregate of a $9.125mn break-up fee, an expense reimbursement up to $1.0mn and a minimum bid increment of $1.0mn.
A hearing to consider the motion for August 3, 2020, with objections due by July 29, 2020.
Proposed Key Dates for the Sale Process
- Deadline to submit Bids: August 5, 2020
- Deadline for Debtors to notify Bidders of Status as Qualified Bidders: August 6, 2020
- Auction to be held if the Debtors receive more than one Qualified Bid: August 7, 2020
- Deadline to file Notice and Identities of Successful Bid(s) and Back-Up Bid(s): August 9, 2020
- Deadline to Reply to Objections to (i) Sale Transaction, (ii) Identity of Successful Bidder, (iii) Conduct of Auction, (iv) Cure, and (v) Adequate Assurance: August 11, 2020
- Sale Hearing: August 11, 2020.
Key Terms of the Stalking Horse APA:
- Seller: Brooks Brothers, 696 White Plains Road, LLC, Brooks Brothers International, LLC, Brooks Brothers Restaurant, LLC, RBA Wholesale, LLC, Retail Brand Alliance Gift Card Services, LLC, Retail Brand Alliance Of Puerto Rico, Inc., Brooks Brothers Canada Ltd., BBD Holding 1, LLC, BBD Holding 2, LLC, and BBDI, LLC (each of the foregoing a “Seller” and, collectively, “Sellers”).
- Purchaser: SPARC Group LLC (the “Stalking Horse Bidder,” or “Buyer”).
- Purchase Price: The consideration shall be (i) an aggregate Dollar amount equal to (a) $305,000,000, minus (b) the amount of the Credit Bid (if any), plus (c) the Estimated Inventory Adjustment Amount, minus (d) the Customer Deposit Balance (such amount, the “Closing Date Purchase Price”), (ii) at the option of the DIP Lenders, an aggregate credit bid of all or any portion of the DIP Obligations (as defined in the DIP Order) (the “Credit Bid” which, together with the Closing Date Purchase Price, as adjusted pursuant to Section 2.7, shall be the “Purchase Price”) and (iii) Buyer’s assumption of the Assumed Liabilities.
- Bid Protections: A break-up fee in the amount of of $9.125mn (3% of $305.0mn) and an Expense Reimbursement up to $1.0mn. There is also a minimum bid increment of $1.0mn.
On July 16th, the Debtors filed a motion requesting each of a bidding procedures order and a sales order [Docket No. 154]. The bidding procedures order would approve (i) proposed bidding procedures relating to a sale of substantially all of the Debtors' assets (the "Sale") and (ii) a proposed timetable culminating in an August 10th auction and an August 17th sale hearing. The sale order would approve the Sale.
In the first week following their Chapter 11 filings, the Debtors twice looked to be tipping their hand as to a preferred suitor; by designating and then redesignating the DIP lender role.
On July 10th, the Debtors swapped out WH HOLDCO, LLC, an affiliate of WHP Global, for ABG-BB, an affiliate of Authentic Brands Group ("ABG") as the provider of their debtor-in-possession ("DIP") financing and in doing so seemingly indicated a preference for ABG as suitor (probably in a widely rumored consortium including Simon Property Group and Brookfield Property Partners) over WH Global, the brand-management firm backed by Oaktree Capital and BlackRock, and which already owns the Anne Klein and Joseph Abboud brands.
In DIP milestones set first by WH HOLDCO and then by ABG-BB, the Debtors were required to file this bidding procedures motion shortly after the Petition date.
There is a very real sense that both of these groups (at least, Italys' Giglio Group SpA, also indicating that they are in the hunt) really want this retail jewel (tarnished as it may be); and this sales process is likely to go down to the DIP milestone wire…and then perhaps beyond. The existing DIP milestones include a bid deadline of August 5th and an auction date of August 10th. Given that extension of these deadlines is within the gift of ABG, one would not be surprised to see them use this trump card.
The bidding procedures motion elaborates, “The Debtors seek to maximize the value of their estates for the benefit of their creditors by conducting an auction for the sale of substantially all of their assets (the ‘Assets’). The Debtors are engaged in advanced negotiations with multiple parties with respect to a potential stalking horse bid, and file this Motion to advance the bidding process and schedule an auction to secure the highest or best bid for the benefit of their estates.
Prior to the Petition Date the Company conducted an extensive and robust prepetition marketing and sales process that continued through the commencement of these chapter 11 cases (the ‘Prepetition Sale Process’). With the Prepetition Sale Process in mind, and in an effort to maximize value for all stakeholders, the Debtors, overseen by the Special Committee of the Board of Directors of Brooks Brothers (the ‘Special Committee’), have developed post-petition marketing, bidding and auction procedures (the ‘Post-petition Sale Process’) for the orderly marketing and sale of the Debtors’ business (the ‘Bidding Procedures’). The Bidding Procedures are designed to promote a competitive and robust bidding process and are intended to generate the greatest level of interest in the Debtors’ businesses.
The Bidding Procedures provide the Debtors with flexibility to solicit proposals, negotiate transactions, select a stalking horse bidder, hold an auction, and proceed to consummate a potential sale transaction (a ‘Sale Transaction’), all while protecting the due process rights of all interested parties and ensuring that there is a full and fair opportunity to review and consider proposed transactions.
The Debtors encourage interested parties to contact the Debtors’ proposed investment banker prior to the proposed deadline to submit bids. Given the ongoing COVID-19 pandemic and the state of the Debtors’ operations and financial condition, it is vital that the Debtors consummate a sale in an efficient manner. Accordingly, the Debtors request approval of the Bidding Procedures to facilitate a potential Sale Transaction in a timely and efficient manner.
The Debtors will have the ability to alter the Bidding Procedures based upon the exigencies of a given situation if the Debtors determine, in their business judgment, in a manner consistent with their fiduciary duties and applicable law, and in consultation with certain parties as provided in the Bidding Procedures.”
Prepetition Marketing Process
The motion continues: "PJ Solomon has advised the Company on a number of matters for nearly a decade. In early 2019, the Company asked PJ Solomon to advise it on multiple strategic investment initiatives and transactions, including a potential sale (the “Prepetition Sale Process”). In April 2019, PJ Solomon contacted a significant number of potential domestic and international investors, including both strategic and financial investors, to solicit interest in the Company. During this process, interested investors executed confidentiality agreements and were provided with diligence access and a Confidential Information Memorandum (“CIM”). A number of parties submitted indications of interest (“IOI”). The Debtors engaged in extensive discussions and negotiations with bidders and provided significant diligence to assist bidders in their evaluation of the Company.
As the diligence process progressed from late 2019 into 2020, the impact of COVID-19 began to materialize. As the COVID-19 pandemic rapidly intensified, the Debtors were forced to shut-down all of their North American stores on March 17, 2020. This severely jeopardized the Debtors’ ability to consummate any previously contemplated transaction.
After further discussions with parties, in May 2020, PJ Solomon reached out to a number of parties that had previously executed non-disclosure agreements and had data room access, requesting that each party submit an IOI to act as a stalking horse bidder in connection with a potential chapter 11 case. In late-May 2020, several parties submitted IOIs.
Following the receipt of such IOIs, PJ Solomon negotiated extensively with the parties in an effort to drive up the value of their bids. The Debtors continued negotiations with such parties until the Petition Date, but ran out of liquidity prior to being able to secure a value maximizing agreement. Accordingly, after the Petition Date, and after securing post-petition financing, the Debtors continued to engage and negotiate with such parties. As of the date hereof, the Debtors are engaged in advanced negotiations with multiple parties with respect to a potential stalking horse bid, but seek the relief requested herein at this time to commence a formal post-petition bidding process to ensure they can complete their sale process in a timely manner, with the ultimate goal of maximizing value for their estates and stakeholders."
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