The stalking horse prevailed.

This story first appeared in the December 19, 2012 issue of WWD. Subscribe Today.

Authentic Brands Group’s $72.3 million bid for HMX has been accepted, according to James “Jamie” Salter, chairman, chief executive officer and president of Authentic, and Doug Williams, ceo of HMX.

“We won, we won, we won,” Salter told WWD Tuesday. He said the objections raised during the bankruptcy process have been resolved and the union representing HMX’s 1,100 workers, as well as the unsecured creditors, are on board.

As reported, the unsecured creditors had filed an objection on Friday that the auction was not being conducted in a fair manner.

While there was talk of a hoped-for “spirited” auction, in the end there was no active bidding on Monday morning. According to a statement filed with the bankruptcy court by Geoffrey A. Richards, who heads up the Special Situations & Restructuring Group at William Blair & Co., HMX’s financial adviser, there was one other bid from the combined team of Bluestar Alliance and The Carlyle Group. That bid, similar in structure to Authentic’s, was submitted on Friday. It was withdrawn Monday morning when it was determined that a contingency involving the signing of a licensee that wasn’t yet in place couldn’t be deemed a “qualified bid.”

RELATED STORY: Williams Files Response With Court >>

It was also learned through court documents on file that Bluestar and Carlyle sought exclusive negotiations for HMX’s assets, but that option was rejected by the debtors’ professionals who wanted to open the bidding process.

“The bottom line is that we knew in the morning that we had the winning bid, but we still had to deal with the objection,” Salter said. He added that, by midnight on Monday, “everyone was aligned, and the union was ecstatic.”

Williams said the creditors committee and the union had agreed to remove their objections to the sale process. “They’re very supportive,” Williams said. “It’s a good day for 1,100 families. We’re very proud of what we were able to accomplish.”

There is a Manhattan bankruptcy court hearing today for approval of the sale and, with all the parties onboard, no surprises are expected. The transaction, which gives Authentic ownership of the intellectual property assets and separates out the operating component to a new entity, is expected to close before yearend.

Under the terms of the deal, Williams’ new company, W Diamond Group Corp., has a 40-year license to handle the former HMX’s day-to-day operations. Williams said the name of the operating company, W Diamond Group, “dates to my grandfather’s ranch in South Dakota; it’s our family brand. This is going to be a family-owned company going forward.”

According to Williams, he and his wife own the new operating company, which will have five board members, including a non-executive chairman. While Salter and his team will focus on promoting the brands here and abroad including the “Made in the USA” tag line, the operating group will focus on product design and on-time delivery. That also includes initial plans to reinvest any profits into the new firm to grow the business, Williams said.

If the W Diamond board ever decides that there can be a distribution of profits, 10 percent of that will be allocated to the union and nonunion workers, 10 percent to management and another 10 percent to a trust for unsecured creditors, according to Williams. That’s because there’s not enough coming in from the sale of the company to pay back all unsecured claims. S. Kumars Nationwide Ltd., the Mumbai-based firm that acquired HMX from the bankruptcy of its predecessor firm Hartmarx Corp., also holds an unsecured claim.

According to Williams, the same 10-10-10 distribution structure applies if W Diamond is ever sold.

“While it’s not actual equity in the company, it performs like [an] equity [stake],” Williams said.

Some observers have their doubts about the long-term viability of the new company. “I don’t know if the plan is sustainable,” said one insider. “There’s an $8.5 million to $10 million royalty that has to be paid back to the [IP holder Authentic Brands]. That will create enormous financial pressure. So in the short term, it’s good, but in the long term, they could be back in court in one-and-a-half years.”

On Tuesday, Salter and Nick Woodhouse, president and chief marketing officer of Authentic Brands, visited Williams in the HMX offices on Park Avenue, shortly after being fitted at the company’s Hickey Freeman store for suits.

Earlier in the day, Williams had called a staff meeting with the employees at the office to “tell them we prevailed. It’s an exciting new chapter,” he said. “The marriage with ABG brings a marketing and branding powerhouse to the table and allows us to do what we do best.” He said he intends to visit the Chicago office on Thursday and the Rochester plant on Friday.

Salter said Authentic’s plan for the company is to “focus, focus, focus, and streamline the business” with a focus on the Hickey Freeman and Hart Schaffner Marx labels, as well as Bobby Jones, Christopher Blue, Exclusively Misook and Jag Jeans.

“The first thing we need to do is stabilize the business,” he said, “get the costs in line, make cuts at the corporate level and concentrate on building a profitable business.”

Williams said there are no cuts planned at the factories, but he has “identified and executed $30 million” in cuts, all of which will be “executed for Day One.” He said HMX’s sprawling offices in Manhattan will be downsized and other back-office reductions will be made.

“In the first year, we will be substantially profitable by jettisoning all the ancillary business that were either in the developmental phase or taking resources from the noncore business,” he continued. For example, the Pierre Cardin and Austin Reed brands were high volume but not profitable and will be eliminated. The Streets retail concept, which brought together several of the company’s brands all in one place, will be abandoned and the remaining unit, a store in the Georgetown section of Washington, D.C., will be closed by the end of the year. “We believe in the concept, but it was a prospecting adventure,” Williams said, “and we cannot afford to do it.” However, the Hickey Freeman flagship on Madison Avenue will remain open and be renovated in the spring, along with the company’s five outlet stores.

Williams said the company “just didn’t have the resources” to expand on many different fronts, including retail, but “ABG’s strength is to line up resources for new avenues of growth.”

Salter believes there is enormous opportunity in expanding the sportswear offerings from the two core brands and then taking the labels international. “We need to get the export business up; it’s nonexistent today,” he said.

Around 30 percent of Authentic Brands’ business is outside the U.S., Salter said. “We’re growing tremendously around the world. Japan is a very big market and can be a very good market for Hickey and Hart Schaffner Marx. China is also important, along with the U.K. and Germany. There are some good export markets that gravitate to U.S. brands.”

One of the stipulations for any distribution agreement or licensing deal is that a percentage of the product be bought through W. Diamond and made in the U.S., Salter said.

“HMX makes great product, but people buy brands because there’s an emotional connection. So we’re going to make sure from a marketing standpoint that we build the brand image, not only in the U.S., but also in Asia, Europe, South America and the Middle East. People like American brands. And as we grow this business, we really want to push the Made in America piece of these two brands. That’s been lacking a bit in its marketing and that’s what we’ll be focusing on in the next 12 months — to build the image of the brands.”

He said Woodhouse, whose background is in Canadian retailing, will spearhead the marketing.

“Both Hickey Freeman and Hart Schaffner Marx have been, and will continue to be, deeply rooted in American fashion,” Woodhouse said. “They have strong equity and are globally recognized, but we believe both have the opportunity to expand far beyond their current category parameters.” Woodhouse said he likes the idea of “telling a story of a brand.” And by expanding the breadth of the brands through product extensions — “everything from timepieces to eyewear” — he believes Hickey and Hart Schaffner Marx can foster a stronger connection with consumers.

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