The John Varvatos era at his namesake brand could be nearing an end.
Multiple sources said Thursday that if Lion/Hendrix Cayman Ltd. is successful in acquiring the men’s wear brand in bankruptcy court, the designer will exit and the U.S. operation will be shuttered.
Varvatos did not respond to requests for comment on Thursday. Lion also declined to respond.
Lion’s plan, according to the sources, is to merge the Varvatos business into AllSaints, another business it owns based in the U.K. AllSaints also is in the process of restructuring its operations through the Company Voluntary Agreement process, the U.K. equivalent of Chapter 11.
Sources said Lion would operate the Varvatos business separately under the AllSaints umbrella, keep several of the stores open and continue to buy a portion of their materials from current suppliers — but Varvatos would no longer design the collection.
WHP Global, an aggressive brand management firm that owns Anne Klein and Joseph Abboud, was the only other qualified bidder for Varvatos, but earlier this week the bankruptcy court ruled Lion’s stalking-horse bid to be superior.
A final decision has yet to be made — WHP is still in the hunt and ready to pounce if Lion doesn’t complete the deal — and there is a hearing on Friday. WHP’s bid is all cash while Lion’s is a credit bid. Sources said that in the unlikely event WHP did prevail, it would keep Varvatos on board.
Varvatos created the rock-‘n’-roll-inspired brand in 1999 and for the first few years, it was associated with Nautica Enterpises. When VF Corp. bought Nautica in 2003, Varvatos became part of that corporation. But the brand struggled for attention under VF’s ownership and in March 2012, VF sold a majority stake in the business to Lion Capital for an undisclosed sum.
The brand has been on the block for several years, but Varvatos owned a 10 percent stake in the business and reportedly had veto power over any sale. That stake was “wiped out” during the bankruptcy, one source said, leaving him with no bargaining power.
As part of the filing in May, the company cited falling sales and declining online revenues since 2015 that were exacerbated by the COVID-19 crisis, which forced it to shutter its stores around the world and furlough its workers.
The company’s secured debt includes $94.8 million in pre-petition notes and $19.5 million under pre-petition credit agreements. It said it also owes more than $26 million in unsecured debt, mainly to vendors and under lease agreements.
Lion/Hendrix Cayman is owned by Lion Capital Fund III Partnerships, a private equity fund formed by Lion Capital that also invests in brand licensing company Authentic Brands Group.