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December 2, 2021 –Further to the Court's August 31th bidding procedure order [Docket No. 141], the Debtors have now filed a notice (i) designating SLC Fashion LLC as the stalking horse bidder (the "Stalking Horse Bidder," $3.3mn bid) for certain of their Sean John brand assets held by newly designated Debtor GBG Sean John LLC (the "Seller" or "Sean John") and (ii) providing the Stalking Horse Bidder with certain bidding protections [Docket No. 382]. The Stalking Horse Bidder is an entity created by CeOpCo, LLC ( the "Ce" for Combs Enterprises) and is controlled by Sean "Diddy" Combs, the rapper turned entrepreneur. On December 1st, the Seller, which had not previously been part of the Debtors' Chapter 11 cases filed its bankruptcy petition and requested joint administration of its case. The Debtors note as to the rationale for not including the Seller as a debtor when they filed at they end of July: "Sean John was not included in the initial filing given that, at that time, the Debtors did not have requisite consent from their joint venture partner to file the entity for bankruptcy." They now have that consent from that joint venture partner, ie Sean Combs. Not noted as to the previosuly lacking "requisite consent" was that the Combs/GBG relationship, begun in November 2016 when the Debtors purchased 90% of Sean John for an undisclosed sum, has not been without tension. In February 2021, Combs launched a pair of lawsuits against GBG in a New York federal court alleging that GBG was misrepresenting Combs' association with a brand that GBG had launched in the UK and misusing IP rights.
In October, Jessica Simpson pursued a similar strategy, buying back 62.5% of the membership interests of With You LLC that the Caputo Group had sold to Sequential Brands Group in 2015. That $65.0mn section 363 sale (Sequential Brands filed for bankruptcy on August 31, 2021) closed on November 2nd.
The Sean John APA is attached to the notice as Exhibit A.
A declaration filed in support of the stalking horse declaration [Docket No. 383] provides: "As a crown jewel asset of their portfolio, the Debtors also contemplated selling their Sean John brand — the Debtors’ joint venture with celebrity Sean Combs — as part of these chapter 11 cases. However, given that Sean John was not an Initial Debtor, the Debtors had planned to structure the Sean John sale as a stock sale of the Debtors’ 90% equity stake in the Sean John joint venture. In the months leading up to the Petition Date, the Debtors and their advisors considered whether Sean John should also file for chapter 11 protection. While an obligor under the Debtors’ prepetition secured credit facilities, Sean John was not included in the initial filing given that, at that time, the Debtors did not have requisite consent from their joint venture partner to file the entity for bankruptcy.
While several potential bidders expressed interest in the Sean John brand, as the marketing process developed over the past several months it became apparent that selling the Debtors’ equity in a non-debtor entity presented significant obstacles for certain bidders, posed execution risk, and stifled competition. To better facilitate a value-maximizing transaction, the Debtors began exploring the possibility of filing Sean John so that the sale could be implemented through these chapter 11 cases. After consulting with their advisors, board of directors, the Official Committee of Unsecured Creditors and their secured lenders, the Debtors determined that filing Sean John and pivoting to a 363 asset sale would maximize value and was in the best interests of their estates.
Following this extensive, months-long multi track negotiation process, the Debtors’ efforts ultimately culminated with the execution of that certain asset purchase agreement (the “Stalking Horse APA”), dated as of December 1, 2021, for the sale of the Sean John assets to SLC Fashion, LLC, an acquisition vehicle affiliated with Sean Combs, the Debtors’ joint venture partner for Sean John…"
Sean John is a Delaware limited liability company created in November 2016. It is a joint venture entity — 90% owned by Debtor GBG USA Inc., as a Class A Member, and 10% owned by Christian Casey LLC and Jessie and D Lila LLC, as Class B Members [named after three of Combs' children]."
Key Terms of the Stalking Horse APA:
- Purchaser: SLC Fashion LLC
- Guarantor: CeOpCo, LLC
- Sellers: GBG Sean John LLC and Pacific Alliance USA Inc
- Purchase Price: The aggregate consideration (the “Purchase Price”) to be paid by Purchaser for the purchase of the Acquired Assets shall be: (i) the assumption of Assumed Liabilities and (ii) a cash payment of $3,300,000 (the “Cash Payment”).
- Bid Protections:
- Reimbursement up to $33,000 of the actual, reasonable, and documented out-of-pocket fees and expenses incurred by the Purchaser (the “Expense Reimbursement”), which represents 1.0% of the cash portion of the Purchase Price; plus
- A fee of $99,000 less the amount of any Expense Reimbursement (the “Break-Up Fee”, and together with the Expense Reimbursement, the “Bid Protections”), which represents 3.0% of the cash portion of the Purchase Price.
Combs Enterprises describes the Sean John brand as follows: "Sean John is a fashion and lifestyle brand created by Sean 'Diddy Combs. Since its launch in 1998, Sean John has grown into an international megabrand and a staple of American fashion and lifestyle, now serving 18 product categories. Sean John has been praised for its innovative approach and received numerous awards and accolades including being named Best Menswear Designer of the Year by The Council of Fashion Designers of America in 2004, and twice receiving the FiFi Award for its fragrances (Unforgivable in 2007, I AM KING in 2009). Sean John has licensing deals with the GBG, PVH, Marchon and others. Since 2010, Macy’s has been the largest distributor of the Sean John brand including sportswear, dress shirts, ties, and kids wear to name a few, both in stores and online. Sean John also owns Enyce, a Hip-Hop inspired clothing brand.
- Bid Deadline: December 15, 2021
- Auction: December 17, 2021
- Sale Objection Deadline: December 20, 2021
- Sale Hearing: TBD
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