On January 10, Malden Mills Industries, Inc. filed for protection under Chapter 11 of the U.S. Bankruptcy Code in an effort to facilitate the sale of the company to Gordon Brothers Group of Boston, Mass. for $44 million. While the sale of the company was unanimously approved by Maldens board of directors, there is no guarantee that Gordon Brothers bid will be the final offer, rather they have been granted Stalking Horse” status in the sale, as the bankruptcy court tries to insure that creditors receive the best offer.
Gordon Brothers was also the stalking horse bidder on the recent London Fog bankruptcy auction, but lost to a bid that was nearly double the original offer from Iconix Brand Group. However, Maldens management team said that they were excited about the prospect of Gordon Brothers owning the company because of its local Massachusetts roots and their recognition of the technology behind the Polartec brand.
In court documents obtained by The B.O.S.S. Report, Malden lists its assets as valued from $1 million to $100 million while liabilities were more than $100 million. There are seven equity owners in the company each controlling a portion of three different types of stock. The equity owners include Malden Mills Creditor Trust, Firetip MMI, and LaSalle Business Credit, as well as GE Capital Finance, which owns 22.5% of the Class B shares.
The top creditors include Rechtsanwalt Harald Bubhardt, in Gorlitz Germany with nearly $5.6 million; Aaron Feuerstein, Maldens former CEO, with almost $1.6 million; and the city of Methuen, with nearly $1.5 million. Top trade creditors included, Unifi ($304k), Outside Magazine ($167k), Rodale Press ($68k), and Consoltex.
The petition includes an incentive bonus plan for key executives and outside directors that is determined by the final sale price at the 363 auction. A management pool would be set up to pay out to the eligible parties $700,000 and 4% of the gross proceeds of the sale in excess of $35 million if Gordon Brothers is successful with their $44 million bid. If the company is sold for more than $45 million, then the pool increases to $1.1 million and 6% of gross proceeds over the $45 million benchmark.
GE Commercial Finance will be providing a Debtor in Possession (DIP) financing facility, which ensures that the Company has the working capital required for the transition in operations to new ownership.
The company will be conducting business as usual at both its facilities in Lawrence, Mass. and Hudson, N.H. according to Michael Spillane, Malden Mills CEO. Spillane spoke with The B.O.S.S. Report just after he left court on Wednesday and said the that the main reason for filing bankruptcy was to clean up the balance sheet to ready the company for the sale.
“We went out to shop the company and let the market tell us what it is worth,” Spillane told BOSS. “Unfortunately we have a lot of legacy liabilities that relate back to prior years — some go back to the mid 90s — that have never been dealt with. Theres an $8 million under-funded pension liability, a $5 million note that belongs to a company that used to exist in Germany, and a number of other things. It became clear to us that there was not going to be a market for the company without a cleansing process. Everybody wanted the assets, there was a tremendous amount of interest in the brand and the real estate and the IP and everything that was really relevant to the business today and running the business going forward, but nobody was interested in paying for the sins of 1994 to 2003.”
Spillane said that this bankruptcy will be much different than the last time Malden filed for protection. The expected timeline, assuming everything goes as the management team and lawyers have planned, would see Malden under new ownership by February 16, 2007.
“Last time we went in (to bankruptcy) in order to reorganize the company, and we submitted that plan to the court,” said Spillane. “The court approved the plan and said we could emerge from bankruptcy. This time we are going into court saying we are going to sell the assets off of the business (to Gordon Brothers). Then the old estate will wind down, and the buyer goes on with a fresh, clean balance sheet.”
However, Malden may encounter a few bumps in the road. In a letter to the judge presiding over this most recent bankruptcy case, the majority shareholder of Malden Mills, Malden Mills Creditor Trust, which owns about 26% of the outstanding common shares of Malden, has asked that the Delaware Court stay the proceedings. In the letter to the Court, MMCT stated that Maldens previous bankruptcy case in Massachusetts was officially closed only fourteen hours prior to the new January 11 bankruptcy petition in Delaware.
They apparently hold the right to “appoint, remove, and replace” two of the members of the Malden Mills board of directors.
MMCT is charging that and the company made no mention in any court document of a plan to immediately re-file and the moves made by the company are an effort to “divest the Massachusetts Bankruptcy Court of jurisdiction and shop for a different forum.” The Creditors Trust is asking for a stay in the Delaware case as it moves to have the Massachusetts Court vacate the closing order there and transfer these new cases back to Massachusetts.
While Gordon Brothers is not a common name in the outdoor industry, they do have a long history in Massachusetts, where it was founded in 1903. Jacob Bernard, Louis and Joseph Gordon formed Gordon Brothers Group as a business solely dedicated to auctioning the assets of retail stores. The company now specializes in dispositions, appraisals, acquisitions, and capital solutions with over 200 professionals and consultants on its payroll.
>>> It is not clear how Malden will fit in to Gordons business model should they win the bid, but the company has certainly morphed into more of a turnaround firm through its GB Merchant Partners group than the liquidator that most know if for on the retail side…
