HMX Group’s bankruptcy-court auction today is expected to be primarily between two bidders, with “stalking horse” Authentic Brands Group facing off against Bluestar Alliance and its backer, The Carlyle Group.
While the team of Bluestar and Carlyle was initially believed to be interested in putting in a bid that includes a liquidation of the HMX factories, industry sources said the team now “believes it needs to keep manufacturing in the U.S.”
One financial source said Carlyle has operators it could pull in to run the business, and therefore doesn’t need to keep the current management team headed by chief executive officer Doug Williams or the proposed financing partner in Authentic Brands’ stalking-horse bid, Salus Capital Partners.
Keeping HMX’s factories has been a hotly contested issue in both its bankruptcy and that of its predecessor firm, Hartmarx Corp. Between both bankruptcies, the jockeying for position has run the gamut from lawmakers to union leaders. Even pre-petition and post-petition lenders pushed for a say to ensure payment of claims.
In trying to save jobs, the legal maneuvering around the bankruptcy took a nasty turn last week.
Lawyers for the unsecured creditors committee filed an objection last week that alleged the actions of ceo Williams, Salus and Authentic were “engineered from the beginning to ensure a favorable result” for the three. The objections and allegations did not include any professionals who are providing services to the debtors.
Other allegations include not providing information on a timely basis when requested, as well as supposedly creating a scenario where potential bidders couldn’t determine whether alternative financing was allowed or whether bids could include other operators. The bankruptcy-court document did note that one alternative financing provider option is CIT. One objection also said the debtors and management refused to allow an extension of the deadline to submit bids, even though there in fact was a one-day extension to Friday at 5:15 p.m. EST from Thursday at 5:15 p.m. EST.
The stalking-horse bid is structured so that Authentic owns the intellectual property of HMX’s brands, and separates out the operating arm to a company managed by Williams. Salus provides the financing for the operating division.
To be sure, the allegations are just that — there’s no lawsuit, and neither Williams, Salus nor Authentic are defendants in any case.
Williams said, “Management and the debtors’ professionals have provided all the information that has been provided. Fundamentally, we believe we have provided a fair process for everyone. The creditors committee is exercising its prerogative and the [bankruptcy court] judge will have to make his decision.”
Executives at Salus could not be reached for comment. Contacted at home over the weekend, James “Jamie” Salter, ceo of Authentic Brands Group, said the objection filed on behalf of the unsecured creditors was an attempt to slow the auction process down and force Authentic Brands to raise its bid in order to obtain control of the company.
However, Salter said it’s unlikely he will increase his offer.
He added: “Made in America is really important and anybody who buys it better make sure those factories continue to operate.”
He said HMX “needs help on the restructuring side, which is something we’re really good at. It’s not just about buying the IP [intellectual property] but financing the company on day two. Are they [Bluestar] willing to do that? You can put a lot more money out up front if you don’t have to finance the company going forward. We’re hoping that our bid will prevail, but we won’t bid against a liquidator.”
Bankruptcy professionals said the objection wouldn’t delay the auction that’s scheduled for today. The expectation is that the judge in the case will issue some clarity on procedures in the morning, before the auction, such as guidance or rules to ensure greater transparency in the process.
The objection also noted that it was hard to determine the value of the assets, and that they may have been undervalued in the stalking-horse bid.
Currently, the Authentic bid is for $72.3 million. Should Authentic lose to another bidder, it gets a $2.2 million break-up fee.
In the bankruptcy auction process, the winning bidder isn’t necessarily the one with the highest dollar offer. The criteria is for the best offer, after evaluating all the variables in the bid.
In the HMX case, the best offer — possibly a sale of the company that also preserves jobs — could very well be one that entails the highest dollar amount, provided there is a much-hoped-for “spirited” auction between Authentic and the Bluestar-Carlyle team. Such a scenario would drive the price up, ensuring a greater return to unsecured creditors and the HMX estate.
It was unclear who else might be bidding. While some expect Iconix Brand Group might step up, it couldn’t be determined whether it had submitted qualifying paperwork to HMX’s financial advisers. Yucaipa Cos., as well as W.L. Ross & Co., are not expected to be involved in the bidding, although the two had early on accessed the data room as they contemplated whether to further pursue a bid.