Ron Burkle’s Yucaipa Cos. will have to pay more than $72.3 million if it wants to get control of HMX Group.
Although HMX has agreed to sell itself to Authentic Brands Group for $72.3 million, WWD learned that Yucaipa has signed a confidentiality agreement and is interested in bidding for all of HMX’s assets — including its North American factories.
A source familiar with Yucaipa’s plans said the private equity firm, if it were to make a bid, is prepared to acquire the entire company — a move that could keep the firm intact as Authentic Brands plans to sell the Canadian factory operations. RELATED STORY: HMX Group Files Chapter 11 >>
“Essentially we are interested in the entire company, not just the intellectual property [assets], but also the facilities and the factories,” said the Yucaipa source, who requested anonymity. “We think [the facilities and factories are] one of their strengths.”
The person also said that Yucaipa’s interest is due to both a close relationship with the union, Workers United, as well as “loving the brands.”
“We feel [HMX’s] ‘Made in America’ [stance] and the employees are a huge asset to the company,” the source said, adding that having both President Obama and his Republican challenger Mitt Romney as supporters of HMX’s core brands Hart Schaffner Marx and Hickey Freeman, respectively, is a big plus for the company and its operations.
HMX is already becoming a political issue, with Sen. Charles Schumer and Rep. Louise Slaughter holding a workers’ rally in Rochester, N.Y., Monday to amp up the pressure to keep the plant open. “I will continue to work to ensure that a potential buyer commits to keep this century-old Rochester manufacturer fully operational and not sold for parts,” Schumer said Monday.
Burkle’s possible entry into the HMX fray would seem natural given that he is a longtime supporter of former President Clinton and the Democrats, and also has invested heavily in fashion. Los Angeles-based Yucaipa was founded by Burkle in 1986, and has stakes in Sean John, Zac Posen, luxury jeweler Garrard & Co., London jeweler Stephen Webster and specialty retailer Scoop.
There are no guarantees Yucaipa will bid, however, and as of now the Authentic Brands offer is the only one on the table. According to bankruptcy court documents, the Authentic Brands agreement is for $72.3 million, which covers $60 million in prepetition claims held by the secured lender Salus Capital Partners, $5 million for the debtor-in-possession post-petition facility Salus provided, $5.1 million for administrative claims in the bankruptcy and a $2.2 million break-up fee, should HMX be sold to another bidder per the customary bankruptcy court auction.
The Authentic Brands agreement is for a going concern sale that has the intellectual property assets going to the brand management and licensing firm and the operating assets to be acquired by existing management. The operating entity, Opco, would become the licensee and pay a royalty fee to Authentic Brands. It also has a provision that “toggles” to a liquidation sale if certain purchasing conditions are not met.
HMX on Friday filed for a voluntary Chapter 11 bankruptcy court petition, its second filing in four years. The last date offers will be accepted is Nov. 28, with an auction set for Dec. 3 at the offices of Proskauer Rose, HMX’s bankruptcy counsel.
In the Authentic Brands’ bid, the trademarks to be licensed to Opco are Hart Schaffner Marx, Hickey Freeman, Exclusively Misook and Christopher Blue — just for existing product categories and solely limited to existing territories where product is sold. The initial length of the license is five years, with automatic extensions for two additional five-year terms. The license can be ended if minimum royalties are not paid in a timely fashion. The royalty rate for full-price wholesale net sales is 8 percent, with 3 percent for off-price wholesale net sales, with certain restrictions. The royalty for sales at full-price retail stores and e-commerce net sales is 4 percent, and for outlet stores and warehouse sales is 2 percent. For the first and second years, the minimum royalty to be paid to Authentic Brands is $8.5 million, and thereafter the greater of 80 percent of the prior actual earned royalty or $9.5 million.
S. Kumars Nationwide Ltd. — HMX’s corporate parent, which holds a 95 percent stake — has been criticized for not providing any further cash infusion and thus resulting in the bankruptcy. Court papers indicate that another reason for HMX’s need to file for bankruptcy again was because “revenues have continued to drop over the past several years as demand for the debtors’ products, particularly moderately priced tailored clothing products, has decreased.” The court document also cited that the “current difficult retail environment, in which slowed consumer spending has been sustained, has exacerbated the problem.”
HMX’s chief executive officer, Doug Williams, said in a court filing that in the 12 months ended June 30, 32 percent of the company’s sales were in product categories other than tailored clothing. Annual sales were estimated at $200 million.
At the Rochester rally, hundreds of union workers and union representatives were joined by Schumer and Slaughter, who implored HMX to keep the plant open and preserve 450 jobs. HMX last week filed “WARN” notices, the Worker Adjustment and Retraining Notification act, with the Workforce Investment Board in New York and Illinois, stating that the company might be forced to close one or both of its plants in the U.S.
The notices help protect workers by requiring that most employers with 100 or more employees provide notification 60 calendar days in advance of plant closings and mass layoffs, and are considered routine filings when a company files for bankruptcy.
Schumer said at the rally he is launching a campaign to ensure that any new owner of the company commits to operating the Hickey Freeman plant in Rochester and maintains the workforce there.
“Hickey Freeman has proven time and time again that the Rochester workforce never gives up, and always comes back stronger after times of economic uncertainty,” said Schumer. “I am going to continue to fight tooth and nail for each of Hickey Freeman’s nearly 450 jobs to stay right here in Rochester after HMX’s bankruptcy announcement last week.”
In August, Schumer worked with then-lenders Wells Fargo and J.P. Morgan Chase to secure bridge financing for HMX to “save the company from possible liquidation and to now keep the doors open during bankruptcy and generate buyers that will keep Hickey Freeman a ‘going concern.’”
Slaughter said, “Before this morning’s rally, I was in conversations with senior management at Hickey Freeman and am heartened that the company plans to emerge from bankruptcy with their manufacturing operation intact,” noting that the move would preserve 1,300 American jobs.
“The purpose of today’s rally was to let the people know that unions and Sen. Schumer and Congresswoman Slaughter are going to fight to keep jobs here in the U.S. and not let someone come in and buy the company or just buy the brands and ship the manufacturing overseas,” said Gary Bonadonna, manager of the Workers United Rochester Regional Joint Board, who attended the rally.
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye