Bankrupt cosmetics retailer Beauty Brands LLC on Friday received more time to review an offer to acquire 23 of its stores and continue operating them as a going concern as an alternative to a proposed stalking horse bid in its Chapter 11 that calls for a chainwide liquidation.
After a brief status conference, U.S. Bankruptcy Judge Christopher S. Sontchi adjourned a hearing on a motion to approve bid procedures in connection with the company's planned Chapter 11 sale of assets until next week, per Beauty Brands' request.
“We have had a very positive development in these cases within the last 36 to 48 hours and that is the submission of a proposed asset purchase agreement by an entity called Absolute Beauty,” Beauty Brands attorney Gregory A. Taylor of Ashby & Geddes PA told the judge. “While that was somewhat unexpected, we always anticipated that Absolute Beauty would participate in the auction process, but it appears they couldn’t wait for the process to be formalized.”
Taylor said that although a recently formed official committee of unsecured creditors supports the going concern bid, “it’s not a simple matter of sliding that proposal in for the stalking horse [offer].”
Beauty Brands needs more time to review the offer and determine what that “proposal may mean for the estate as a whole going forward,” he added.
In a court filing Wednesday, Beauty Brands founders Robert and David Bernstein contended their entity Absolute Beauty LLC’s offer to buy 23 of Beauty Brands' “core” stores and other assets for $4.6 million was superior to the stalking horse offer of liquidator Hilco Merchant Resources LLC because it would save jobs and continue operations at the 23 stores.
A stalking horse bid from Hilco proposes that the liquidator would guarantee that the sale of merchandise at 33 core stores would bring in $12.25 million to $12.45 million. Hilco is also already running going-out-of-business sales at 23 noncore stores, which began Jan. 3, with an agreement that the debtors receive 65 percent of the proceeds of those sales.
Absolute Beauty is targeting 23 of the 33 stores that are subject to Hilco's stalking horse bid.
If Hilco is the successful bidder for the sale of assets at the 33 core stores, it is set to give the debtors 80 percent of proceeds from sales at all the stores, per terms of the agreement.
“There is nothing unexpected about anything that has happened,” Absolute Beauty’s attorney Joshua A. Sussberg of Kirkland & Ellis LLP said at Friday's hearing. “The Bernsteins put a bid in on a going concern basis back on Dec. 18 with a fully formed asset purchase agreement.”
Since, they “have been standing ready, able and willing to move forward with a going concern bid that saves hundreds of jobs,” assumes 23 store leases and “allows the company to continue as a viable business,” Sussberg said.
Sussberg said he appreciated the debtors' need to review the offer but that he thinks “it is as easy as [the debtors] saying yes and moving forward.”
“We don’t intend to leave our bid out there for a long period of time. We want to move forward and keep this business operating,” Sussberg said.
“We, as the liquidator, don’t disfavor a going concern bid that ultimately within the process achieves a higher and better result,” Ian Fredericks, Hilco’s executive vice president, told the judge.
However, he argued the “integrity of the process" is important and that Beauty Brands used its business judgment in selecting Hilco as stalking horse bidder.
The committee and Office of the U.S. Trustee have objected to bid protections extended to Hilco, as well as to a proposed shortened timetable for the sale process.
Hilco’s offer, the creditor committee contends, would chill bidding as a result of requirements that include a minimum $7.1 million offer from any competitor — a number that includes buyer coverage of a $250,000 fee for Hilco’s termination — $50,000 in expenses and a $100,000 minimum offer in excess of Hilco’s.
Beauty Brands filed for Chapter 11 protection earlier this month, citing declining sales and rising costs associated with doing business as a primarily brick-and-mortar retailer. Founded in 1995, the Kansas City, Missouri-based Beauty Brands operates specialty beauty stores that sell products and provide spa and salon services.
Beauty Brands is represented by Gregory A. Taylor, Stacy L. Newman, Katharina Earle and David F. Cook of Ashby & Geddes PA.
The committee is represented by Mark Minuti and Lucian B. Murley of Saul Ewing Arnstein & Lehr LLP, and Eric R. Wilson, Jason R. Adams and Lauren S. Schlussel of Kelley Drye & Warren LLP.
Absolute Beauty is represented by Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP, and Joshua A. Sussberg and Gene Goldmintz of Kirkland & Ellis LLP.
The case is In re: Beauty Brands LLC et al., case number 1:19-bk-10031, in the U.S. Bankruptcy Court for the District of Delaware.