More than four months after filing for bankruptcy, Hartmarx Corp. has a buyer in place.
A Chicago bankruptcy court on Tuesday approved Emerisque Brands UK Ltd. as the stalking horse bidder for bankrupt Hartmarx after the London-based firm raised its bid over the weekend to a total transactional value of $128.4 million.
Emerisque and investing partner SKNL North America B.V. initially bid $119 million, which was accepted by Hartmarx’s board on May 21. That bid included $70.5 million in cash, a junior subordinated secured note of $15 million and the assumption of liabilities of $33.5 million.
The $119 million bid was criticized by Wells Fargo, lead agent for the bank lending group that loaned Hartmarx more than $114 million in pre-petition and post-petition financing. The bank on Friday disclosed its reasons for objecting to the bid on grounds ranging from inadequate financing to the bidder’s lack of commitment to Hartmarx employees. Emerisque rebuked the assertions, stating the bank group was just seeking a higher offer and reaffirmed its commitment to keep jobs in the U.S.
Sources said another round of negotiations began over the weekend, which resulted in the increased bid to $128.4 million. The revised offer includes an increase in the cash component.
Wells Fargo declined comment Tuesday.
Emerisque said, “The Emerisque-SKNL offer was the only bid that committed to keeping the business whole and operating it as a going concern. We believe this is in the best interests of the company’s customers, vendors, employees and communities at this crucial juncture in the future of the company and in this economic environment.”
Throughout the last several weeks, both lawmakers and the unions representing Hartmarx employees governed under collective bargaining agreements have been applying pressure on the bank lending group to allow the sale of the 120-year-old firm and not push for its liquidation.
“I think our members are very encouraged, but they are still a little fearful,” said Ray Quintanilla, an SEIU spokesman. “They are waiting until the bidding is over and the judge strikes the gavel and says Emerisque is the company that will bring Hartmarx out of bankruptcy.”
SEIU, whose affiliate Workers United represents the Hartmarx workers, is backing Emerisque.
“Emerisque is important because it wants to keep the ‘Made in America’ label on these products and that is very encouraging,” Quintanilla said.
Emerisque isn’t in the clear yet. The stalking horse bid sets a floor for better offers. The next step is a bankruptcy-court-approved auction.
Court papers signed by Bankruptcy Court Judge Bruce Black set a hearing at 2 p.m. on June 25 to approve the auction results.
The auction is expected to be conducted on June 24, but prospective bidders will have to make their intentions known and sign confidentiality agreements by June 19. Once those agreements are signed, interested bidders will have access to the so-called data room, giving them financial information to conduct due diligence. Additional bid documentation, such as good faith deposits and evidence of adequate financing, will need to be filed by June 22 with Hartmarx’s bankers.
Should the deal with Emerisque not close due to a better offer at auction, Hartmarx would be responsible for paying Emerisque a break-up fee of $1.65 million, as well as $2 million for reimbursement of expenses.
The expectation is that there are bidders who will likely step up to bid for parts of Hartmarx, a result that would split up the firm. Anyone wishing to bid for the business in its entirety would have to start its offer at $133.05 million — the sum of the revised $128.4 million transactional value of the stalking horse bid, $3.65 million for the break-up fee and reimbursement expense, and a $1 million minimum overbid amount.
Hartmarx, whose Hart Schaffner Marx brand was the label of choice for President Obama during his campaign and inaugural festivities, filed for Chapter 11 bankruptcy court protection in January.