The protracted, complicated purchase of Hartmarx is finally a done deal.
Emerisque Brands U.K. Ltd. and SKNL North America B.V. breathed a sigh of relief Friday as they completed the acquisition of the assets of bankrupt Hartmarx Corp. And Hartmarx employees, or at least the majority of them, now can look forward to holding onto their jobs.
The assets of Hartmarx are now under the newly formed company Hartmarx Operating Co. LLC.
“We are delighted to have completed this acquisition,” said Nitin Kasliwal, chairman of SKNL, who on Friday was named to the same post at the new Hartmarx. “This is an important step forward towards our ambition of being ‘clothiers to the world.’”
Ajay Khaitan, founder of Emerisque and vice chairman and chief executive officer of the new Hartmarx, said, “We thank our customers, partners and employees for supporting Hartmarx throughout the long and complicated transaction period and want to let them know we are committed to being a strong partner, dedicating the resources and expertise necessary to honor Hartmarx’s heritage and realize its potential.…Although we still face hard work and difficult decisions in the months ahead, we believe that the best days for the company are ahead.”
Following Hartmarx’s Chapter 11 filing by nearly seven months, the deal follows a tough and protracted closing process that took over a month and included many fits and turns.
The buyers had expected to close the deal on Wednesday, but were then taken by surprise by another round of demands from Hartmarx and the professionals in the case seeking additional funds to close the transaction. That had the two buyers suddenly racing against time to get the deal done by the end of the business day on Friday.
Emerisque and SKNL have been hit by snags involving issues concerning demands from the Hartmarx camp, which asserted the buyers be responsible for unexpected, non-contracted-for administrative claims, according to court records. The disputes dealt with whether those claims should be paid by the purchaser or are really the responsibility of “Oldco,” as the Hartmarx estate was sometimes referred to during the winding-down process.
An additional surprise surfaced Friday morning over financial irregularities at Hartmarx in the last few weeks. Sources close to the bankruptcy said Hartmarx failed to make its payroll on Friday. That had the buyers scrambling to find solutions that would enable both a completion of the deal as well as ensuring that, as a separate matter, employees got paid.
Emerisque and SKNL even went to court late Thursday with an emergency request for the Chicago bankruptcy court overseeing Hartmarx to rule on the parties’ respective rights under the purchase agreement.
According to the emergency motion filed by Emerisque and SKNL, and denied by the court, its purpose was to “bring an end to the continued attempts by the debtors to extract further funds from the purchasers not required to be paid under the agreement.”
The document further charged, “The debtors’ attempt to sabotage the sale in hopes of extracting additional consideration from the purchasers is unfounded and disingenuous. The debtors’ estates will retain excluded assets from the sale transaction valued in excess of $18 million, as well as recovery from avoidance actions, from which to satisfy remaining administrative claims that are not otherwise covered by the agreement.”
Sources at the hearing said the motion was denied because the dispute concerned negotiations between parties rather than matters within the purview of the court.
The purchasers tried for the past month to close the deal as soon as possible to avoid losses to the value of the Hartmarx assets as well as keep workers employed. The original close date was July 7.
A court transcript showed that in July, just to get the deal completed, Emerisque and SKNL even agreed to up the $128.4 million offer, which includes liabilities, by $2.3 million to take care of unanticipated administrative claims that weren’t contemplated in the court-approved purchase agreement. That was before a new set of demands for more funds was produced Wednesday, the day the buyers had planned to close on the deal.
There was palpable fear last week that, if the transaction couldn’t be completed by Friday, Hartmarx would be liquidated, resulting in job losses.
Sources said Emerisque and SKNL in recent days uncovered additional irregularities in Hartmarx’s cash accounts, which required the purchasers to provide additional guarantees to lenders to maintain funding to keep the Hartmarx operations going. However, due to the possible impact those irregularities have on operations, there’s now still a chance job cuts will have to be deeper than initially expected. That’s because there’s likely little or no money left from Oldco to fund its obligations, which include payroll and benefits to employees of the new company.
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