Brooks Brothers will head to its sale auction next week with the $305 million stalking-horse bid by Sparc Group — a joint venture of Authentic Brands Group and Simon Property Group — that sets a baseline offer for any competitors.
At a telephone hearing Monday, the retailer’s advisers urged the Delaware bankruptcy to formally appoint the Sparc Group bid as the stalking horse, ahead of its sale auction scheduled for Aug. 10. There was some apparent competition for the status as WHP Global, previously bested by the ABG-Simon partnership for the role of Brooks Brothers’ debtor-in-possession financing lender, had sought to enter its own bid.
WHP, which had advanced a $334 million cash bid in mid-July for the company, was still in the process of securing all the necessary documentation, and would need up to two more days, its attorney told the court at Monday’s hearing. The WHP bid represented a venture effort with a “public company” with the resources to fund the offer, WHP’s attorney Gary Kaplan, restructuring and insolvency partner at Fried, Frank, Harris, Shriver & Jacobson LLP told the court. Kaplan did not identify the company he was referring to.
Brooks Brothers’ advisers told the court that WHP, or any other competitors, could simply put in their rival bids at next week’s auction. But Kaplan pointed to the $10 million break-up fee and expense-reimbursement provision in the Sparc Group stalking-horse agreement, which he said would ultimately prove insurmountable for the WHP team. Though the stated dollar amount of its offer appears numerically higher, calculations of the overall value of bid offers can be a different matter and subject to disagreements.
“The weight has been on the scale against us, to the point that it is very difficult for us to continue in this process and to see it as a fair process,” Kaplan told the court.
But bankruptcy Judge Christopher Sontchi wasn’t swayed that he needed to allow two more days for a rival stalking-horse bid from WHP to materialize, and affirmed the need to keep the process moving quickly.
Sontchi remarked also that he believed the goal of establishing a stalking horse in the first place was to set a competitive baseline for other offers, even though the hurdles established by that baseline might turn away some potential bidders.
“One of the primary drivers of value I think in auctions are stalking horses,” Sontchi said at the hearing.
“It is appropriate to appoint a stalking horse, even though every time you do it, and you have bid protections, you might be driving away bidders,” he said, referring to bid protections such as break-up fees in stalking-horse offers that rival bidders would have to foot the bill for.
“We’re in a situation where time is our enemy,” he added.
A representative for Brooks Brothers lauded the outcome in a statement after the hearing.
“We are pleased the sale process is advancing with court approval of the bid procedures and stalking-horse protections and we look forward to the auction next week,” the representative said. “Our goal continues to be finding the right buyer and continuing our legacy as an institution of American fashion.”