By Dennis Seid
Furniture Brands on Wednesday received court approval for as much as $115 million in bankruptcy financing as it looks to sell most of its assets to Oaktree Capital Management for $166 million.
But it must wait until Oct. 2 to seek the full $140 million financing package offered by Oaktree, Bloomberg Businessweek reported.
Furniture Brands’ warm embrace of Oaktree is a far cry from its reaction to a buyout offer five years earlier.
In early 2008, Furniture Brands – parent company of Lane Furniture Industries, whose 1,451 employees could lose their jobs soon – fought off an attempt from investment firm Sun Capital. Sun offered a “substantial premium” of $14 to $16 for its shares. Furniture Brands managed to keep the company out of Sun’s hands, despite the latter adding three members to the board of directors.
Sun said it was “extremely concerned” about Furniture Brands’ restructuring efforts, and said the company was over-leveraged. It also had worries about CEO Ralph Scozzafava’s lack of experience in the furniture industry.
In rebuffing Sun, Furniture Brands said it was concerned about Sun’s uneven performance in other furniture industry acquisitions. It also said Sun’s portfolio at the time included industry competitors.
Sun wasn’t the only company interested in buying Furniture Brands.
Prior to Sun’s offer, in late 2007, Samson Holdings of Hong Kong, which then owned some 13 percent of the company’s shares, had inquired about a merger for an undisclosed amount. Samson is one of China’s largest furniture conglomerates. That offer was declined as well.
Furniture Brands restructuring efforts, however, failed to stem the tide of red ink. The company hasn’t posted a profit since 2006.
In 2008-2009 alone, the company lost a combined $524 million. Losses have continued to flow: $109 million in 2009, $39 million in 2010, $43 million in 2011 and $47 million last year.
FISHING FOR BUYER
Filings with the bankruptcy court this week also reveal that Furniture Brands asked investment bank Goldman Sachs to look into the possibility of selling its business in 2011.
Goldman Sachs contacted more than 15 potential candidates, but apparently none were interested. The reason: According to Furniture Brands’ chief financial officer Vance Johnston in a declaration, “Potential purchasers expressed concern over potential legacy pension liability and/or only desired to acquire discrete assets of the company.”
Furniture Brand’s pension liability is about $200 million.
In the two years since that search for a buyer, Furniture Brands fortunes have continued to spiral downward.
In August, it hired a team of restructuring attorneys and advisers, and it didn’t take long for them to determine “pressing liquidity constraints resulting from decreased sales, burdensome long-term debt obligations and legacy personnel liabilities was impeding (our) ability to implement successful operational improvements and participate in out-of-court restructuring.”
While Oaktree made its offer to buy most of Furniture Brands’ assets, except Lane, Furniture Brands received two other offers. But Furniture Brands picked Oaktree because it felt its offer provided more liquidity, more flexibility and better terms.
Still, other higher bids could still come for Furniture Brands assets.
In fact, Reuters said KPS Capital Partners made an alternative offer, forcing Oaktree to offer better terms.
Bloomberg said Oaktree’s offer for everything except Lane remains at $166 million, but “has agreed that if Lane sells for less than $49 million it can match that offer and pay cash to make up the difference.”
The story also said KPS could buy Lane as well, quoting a lawyer for the firm who said it could come back with a better offer.