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March 25, 2021 – Further to a February 26th bidding procedures order [Docket No. 164] and an auction held on March 24, 2021, the Debtors notified the Court that they had designated stalking horse bidder Stellex/CF Buyer (US) LLC ("Stellex" or the "U.S. Buyer") as the successful bidder in respect of their U.S. assets; with Taylor Fresh Foods, Inc designated as the back-up bidder [Docket No. 404]. As detailed in the summary of bids below, the auction results advance considerably on Stellex's opening bid of $66.9mn in respect of the combined U.S. and Canadian assets, with three separate sales (one for U.S. assets and two for Canadian assets) now generating value the Debtors peg at $88.9mn ($63.3mn cash) for their U.S. and Canadian estates.
A term sheet was filed in respect of the $57.0mn sale of the U.S. assets to Stellex ($33.35 in cash; a $2.15mn credit for break-up fee; and expenses and liabilities capped at $21.5mn) at Docket No. 420.
The Debtors also notified the Court of sale developments in their parallel Canadian asset sale process; noting that: (i) Homestyle Selections LP had been selected as the successful bidder for their Toronto / Brampton Assets (Summer Fresh Salads Incorporated as back-up bidder) and (ii) Save-On Foods Limited Partnership had been selected as a the successful bidder for their Vancouver Assets [Docket No. 404].
The U.S. sale hearing is scheduled for March 25, 2021 and an equivalent hearing in respect of the Canadian assets is scheduled for March 26, 2021.
The term sheet provides:
“Except as set forth below, the Agreement shall incorporate terms substantially consistent with that certain Asset Purchase Agreement, dated March 19, 2021, submitted by Taylor Fresh Foods, Inc. as its initial bid pursuant to the U.S. Bidding Procedures Order, as amended in connection with the Auction held pursuant to the U.S. Bidding Procedures Order (the ‘Draft Taylor APA’) and shall supersede that certain Asset Purchase Agreement by and among the Sellers and Stellex/CF Buyer (US) LLC and Stellex/CF Buyer (CN) Inc. dated as of February 15, 2021 (as same has been or will be amended, supplemented or otherwise modified from time to time, ‘Stalking Horse Purchase Agreement’) which was approved pursuant to the U.S. Bidding Procedures Order and the Bidding Procedures Order entered on March 1, 2021 by the Ontario Superior Court of Justice (Commercial List) (the ‘Canadian Bidding Procedures Order’ and, together with the U.S. Bidding Procedures Orders, the ‘Bidding Procedures Orders’). The completion of the transactions contemplated by this Term Sheet will be subject to, among other things, execution and delivery of legally binding definitive agreements between the parties consistent herewith and otherwise on terms mutually acceptable to the parties and approval by the Bankruptcy Court.”
Key Terms of the Stellex APA (per term sheet):
- Buyer: Stellex/Cf Buyer (US) LLC and Stellex/Cf Buyer (CN) INC
- Seller: Country Fresh Holding Company Inc. and certain of its affiliates
- Purchase Price: $35.5mn in cash (subject to the Purchase Price Adjustment, Break-Up Fee and Expense Reimbursement credits set forth below) and assumption of the Assumed Liabilities (including Cure Costs as and to the extent set forth in the Draft Taylor APA)
- Purchase Price Adjustment: The total Liabilities assumed by Buyer on account of Assumed Prepetition Payables, PACA Claims, and Post-Petition Trade Payables shall be no greater than the Cap of $21.5mn, and the Purchase Price shall be decreased dollar-for-dollar in the event of any payment of such Liabilities by Buyer that exceed the Cap.
- Payment of PACA Claims: Buyer agrees to pay prepetition PACA Claims (a) if a prepetition PACA Claim is undisputed, on the Closing Date (a list of which, as of the date of the Agreement, shall be attached to the Agreement), in full in cash in such undisputed amount, or (b) if a prepetition PACA Claim is disputed, within 2 business days following the entry of a final order of the Bankruptcy Court allowing all or a portion of such PACA Claim, the full allowed amount of such PACA Claim in cash (or other mutually acceptable amount); postpetition PACA Claims will be paid in the ordinary course of Buyer’s business.
- Bidder Protections: (i) break-up fee of $1.45mn, (ii) expense reimbursement of up to $700k and (iii) an initial overbid requirement of $500k (further bids to increase by at least $200k). Buyer shall be entitled at closing to a credit to the Purchase Price for each of the break-up fee and expense reimbursement
On February 16th, the Debtors filed a bidding procedures motion which included a request for Court authority to select Stellex as their stalking horse bidder in respect of separate sales of their U.S. and Canadian assets.
On February 26th, the Court issued an order (i) approving the bidding procedure for the Debtors’ sale of assets, including bidder protections for (a) Stellex/CF Buyer (US) LLC (the “U.S. Buyer”) and (b) Stellex/CF Buyer (CN) Inc. (the “Canadian Buyer”, and together with the U.S. Buyer, the “Stalking Horse Bidder(s)”); and (ii) authorizing the Debtors to enter into a stalking horse asset purchase agreement (the “APA”) with the Stalking Horse Bidder [Docket No. 164].
On March 12th, the Debtors filed an amendment to the stalking horse asset purchase agreement in respect of the U.S. assets [Docket No. 277 at Exhibit A].
The Stalking Horse Bidder(s) are affiliates of global middle market private equity firm Stellex Capital Management (“Stellex”).
The motion explains, “In October, 2020, the Debtors determined that it was in their best interests to explore merger and acquisition opportunities with potential strategic acquirers in the food and beverage industry. Before engaging an investment banker, the Debtors had strategic discussions and/or inbound inquiries from nine (9) potential parties regarding a potential sale transaction. Following those discussions and inquiries, two parties made offers to acquire all or a portion of the Debtors’ assets. One of the offers was for a small, discrete portion of the Debtors’ assets, and the Debtors determined that the proposed purchase price was too low at the time. The second offer, from a large strategic food provider, was for substantially all of the Debtors’ assets (‘Initial Potential Buyer’). Given the serious nature of the discussions with the Initial Potential Buyer and recognizing the need to ensure that the Debtors were receiving a competitive offer for their assets, the Debtors engaged Stout as their investment banker in October 2020.
Stout considerably expanded the marketing process for the Debtors’ assets by further exploring market opportunities and growing the list of potential interested parties. As detailed in the Krakovsky Declaration, at the direction of the Debtors, Stout identified certain potentially highly strategic buyers in the food and beverage sector, private equity firms with portfolio companies in the food and beverage sector, and a select few pure financial buyers with significant industry experience and an appetite for distressed and/or turnaround situations.”
The Krakovsky Declaration (attached to the motion at Exhibit A) picks up the narrative: “By the end of 2020, Stout had reached out to over thirty (30) potential parties in connection with the first phase of its marketing process. Of this first phase group, many parties who were contacted passed on this opportunity for a variety of reasons, including the distressed nature of the business, lack of strategic fit, their own financial challenges, and/or inability to complete their due diligence in time over the holiday season. Others, however, indicated that they remained interested in the Debtors’ assets, in whole or in part, and indicated they would consider participating in an auction. This subset group continued their due diligence of the Debtors’ assets.
In early January 2021, Stout launched its more comprehensive marketing process, sending teasers to an additional one hundred seventy (170) parties. Thus far, Stout has reached out to approximately 210 potential buyers including nearly 90 strategic parties, 20 ‘hybrids’ (private equity firms with strategic portfolio companies in the sector), and over 100 pure financial buyers. Of this amount, numerous parties have indicated that they are interested in the Debtors as a whole, while some parties have indicated a preference for select assets.
In December 2020, the Debtors with Stout’s assistance, negotiated and finalized a letter of intent with the Initial Potential Buyer. This initial offer was predicated on such party being a stalking horse bidder and targeted a close by March 2021. The offer was for the United States assets and some of the Canadian assets of the Debtors. In light of the competitive dynamics, and the stated desire by the Debtors’ to sign up a stalking horse soon both to establish a ‘floor’ and provide certainty to the Debtors’ employees, customers and vendors, the Initial Potential Buyer accelerated its due diligence of the Debtors. The Initial Potential Buyer was aware that the Debtors continued to market their assets to a wide range of other potential buyers in an effort to solicit higher and better offers.
In late December 2020, Stellex Capital Management LLC (‘Stellex’) indicated its interest in acquiring the Debtors, both United States and Canadian assets.
The Debtors, along with Stout, and the Initial Potential Buyer continued their negotiations over the asset purchase agreement. On January 6, 2021, the Initial Potential Buyer, however, withdrew its offer.
At the time that the Initial Potential Buyer withdrew its offer, Stellex was further ahead of other potential bidders in terms of due diligence. The Debtors and Stout then accelerated discussions with Stellex about being the stalking horse bidder. On January 25, 2021, a non-binding indication of interest was signed by the Debtors and Stellex.
Over the next several weeks, the Debtors and Stout negotiated with Stellex regarding the details of the proposed sale transaction. On Februa1y 15, 2021, Stellex and the Debtors signed the Stalking Horse Purchase Agreement.”
About the Debtors
According to the Debtors: “The Fresh Food Group (FFG) provides full-service fresh solutions for retail, foodservice, club and convenience stores including merchandising and category support. We proudly operate eight facilities across the U.S. and three in Canada. We are the leading providers of fresh-cut fruits and vegetables, snacking products and home meal replacement solutions.”
The Marotta Declaration adds: “…referred to generally as the “Fresh Food Group”, a premier, full-service provider of branded and private-label offerings of fresh-cut fruits and vegetables, ready-to-go meals and meal kits, behind-the-glass salads, snacks, and ingredients/bulk food components to supermarkets, club stores, convenience stores, industrial, and food-service customers in the United States and Canada. Historically, the Company focused exclusively on fresh-cut fruit and vegetables; recently, it expanded its product offerings into sous vide and kettle cooking of chicken, fish, and beef entrees as well as pasta. The Company believes that the market for retail-ready fresh meal kits and ready-to-go meals will also continue to grow in addition to its staple offerings of fresh-cut fruits and vegetables and fresh snacking solutions.”
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