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Like its vintage jewels, old problems at Fred Leighton continue to resurface.
This story first appeared in the January 7, 2009 issue of WWD. Subscribe Today.
Ralph Esmerian, the notable jewelry collector and dealer who acquired the jeweler in 2006 along with Merrill Lynch’s Global Asset Based Finance Group, has relinquished control and authority over all aspects of Fred Leighton Holding Inc. to Thomas Shull, chief executive officer of Meridian Ventures LLC. Shull has been named chief restructuring officer-plan facilitator of Fred Leighton.
Satyajit Bose, the company’s chief financial officer, stepped down on Monday for both personal and professional reasons, said Esmerian. Bose couldn’t be reached for comment Tuesday.
In November, company president Peter Bacanovic — who joined the firm a year ago — unveiled plans for Leighton to emerge from bankruptcy this month and to open retail outposts in Asia and the Mideast. The company remains in bankruptcy, and Esmerian said any plans for a store rollout have been delayed indefinitely.
According to an order filed Dec. 18 in U.S. Bankruptcy Court in Manhattan, Esmerian, the creditors’ committee and Merrill Lynch agreed to the appointment of Shull.
In the position, court documents said, Shull has full control and authority over all aspects of Fred Leighton Holding Inc. and all its assets and has prior approval authority over business decisions for the company.
“The hire [of Shull] is a court appointment,” said Esmerian. “He has been given enormous latitude from the court to look at the business of Fred Leighton.…He’s not there to liquidate Fred Leighton, he’s there to make it grow and survive. He’s there to facilitate operations and also try to mediate with Merrill Lynch some kind of an exit strategy that would be beneficial to Merrill Lynch and Ralph Esmerian.”
The order putting Shull in charge of Fred Leighton came almost a month after Merrill Lynch asked the court to remove Esmerian and appoint a Chapter 11 trustee to oversee the bankruptcy. In a motion filed Nov. 21, the company accused him of acts of dishonesty, incompetence and gross mismanagement. Among other charges, Merrill Lynch alleged that, during Chapter 11 proceedings, Esmerian had diverted proceeds of its collateral to his own interests, sold collateral in violation of a restraining order and misappropriated assets.
Esmerian’s attorneys responded with an objection on Dec. 9, calling Merrill Lynch a “juggernaut” and its accusations unfair and inaccurate. They accused Merrill Lynch of filing its request for a trustee as payback for a $500 million amended complaint they had filed against the creditor on Nov. 10.
The tale of Esmerian’s Leighton is a complicated one. In 2006, he acquired the firm from its founder, Murray Mondschein, who goes by the name Fred Leighton. With stores on Madison Avenue in New York and within the Bellagio hotel in Las Vegas, Leighton was a go-to resource for celebrities such as Nicole Kidman and Sarah Jessica Parker for red-carpet appearances. Leighton also is favored among many stylists and magazine editors for its trove of rare and exquisite vintage diamond, pearl and gemstone jewelry and objets d’art.
Esmerian, a famous collector, was considered by many as an ideal fit to own Fred Leighton, even though some noted he has more of an eye for jewelry than business.
In March, Merrill Lynch sought repayment of the $183.3 million it had loaned to Esmerian, who at the time had paid back only $10 million. To repay the loan, Merrill Lynch helped facilitate an auction, called “Rare Jewels and Gemstones: The Eye of a Connoisseur,” at Christie’s of Esmerian’s most prized pieces, including several large, rare gemstones and French crown jewels. But Esmerian wanted to sell the pieces, which were initially put up as collateral, through Leighton, saying he had buyers lined up for several of them. The Christie’s sale, which was slated to take place April 15, was halted when Esmerian put Fred Leighton Holding into Chapter 11 bankruptcy protection. The auction was eventually aborted entirely, but some pieces were sold privately by Christie’s, such as the Empress Eugenie brooch bought by the Louvre.
In October, Esmerian and his fellow debtors filed a complaint in federal bankruptcy court in Manhattan asking a judge to void Merrill Lynch’s security interest in the Fred Leighton collections. If that request were granted, the financial firm would lose its rights to seize and sell the collections.
The 75-page document alleged that Merrill Lynch structured the two parties’ business relationship so as to “maximize its own short-term profits while at the same time dooming the Fred Leighton acquisition to failure.” Among other charges, Esmerian and the debtors accused Merrill Lynch of breach of contract, negligence and libel over the course of the two companies’ association. The following day, Merrill Lynch filed its own complaint for judgment, in which it reasserted its security interests in all Fred Leighton assets. The firm accused the debtors of failing to make payments on loans it extended and of still owing approximately $192 million.
“I’m still the owner and the debtor. I’m the man who owes the money and has to repay it,” Esmerian told WWD. “I am a jewelry person; I’m a product person. I’m still involved at that end of it.”
Although it may prove to be the most contentious, this is hardly Shull’s first exposure to complex turnarounds. For nearly two decades, he has played a key role in a number of the most high-profile bankruptcies in the fashion world, including R.H. Macy & Co. and Barneys New York, and served as an adviser on some of the more challenging turnaround projects in and out of the world of apparel. He has been chief executive officer of restructuring specialist Meridian Ventures LLC since it was founded in 1990 and currently is a director of Zale Corp. He served as ceo and later chairman of Wise Foods between 2004 and early 2008, after nearly four years with Hanover Direct.
In apparel and accessories circles, he was well known as the president, and later president and ceo, of Barneys New York as it worked its way through bankruptcy proceedings from 1997 through 1999. From 1992 to 1994, during R.H. Macy & Co.’s bankruptcy, Shull was executive vice president of the company and lead negotiator with its creditors in the reorganization that preceded its takeover by Federated Department Stores, now Macy’s Inc. He served as interim ceo of the bankrupt, and later liquidated, Merry-Go-Round Enterprises after leaving Macy’s before a stint at Federated Merchandising as vice chairman that lasted just four months.
Under the terms of what is known as an “agreed order,” Shull will oversee an investigation period until Feb. 15, during which he will be charged with reviewing the conduct and financial condition of Fred Leighton. Once the review is completed, he will meet with all parties to negotiate terms of a settlement, provide them with his recommendations for a restructuring plan and for a resolution of the disputes between them.
One bright light for Fred Leighton is awards season in Hollywood, which starts Sunday night with the Golden Globes. Each year, the firm makes a significant push to work with stylists and actresses in order to lend them their jewels. “It does help,” said Esmerian of celebrities wearing Leighton’s jewelry to the awards. “But in today’s environment, I couldn’t predict whether it’s one sale a day or more. The luxury world is hurting right now and people have a paralysis of spending money, and I understand that myself.”