Sources tell FOX Business’s Charlie Gasparino that at least two of the top investment groups are considering an offer for Brooks Brothers in bankruptcy court.
The famous retailer Brooks Brothers could be rescued from bankruptcy, but the company can survive as a shell of itself.
When Brooks Brothers emerges from Chapter 11 bankruptcy and reorganizes under new ownership, many of its 250 retail stores are likely to disappear in an attempt to cut costs and shift distribution of their products to cheaper and possibly more efficient online sales. Instead of the antiquated, the in-person experience that customers received during the company’s 200-year history.
Also on the slice: Brooks Brothers’ three factories in New York, Massachusetts and North Carolina. While all likely bidders will reduce the brand’s retail store footprint, some may choose to keep factories as a way to convince bankruptcy courts to look beyond Thursday’s “stalking initial offer” evening by Sparc Group LLC, a joint venture between Authentic Brand Groups and Simon Property Group.
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The offer is known as a “stalking horse” because, although it was accepted by current management in the bankruptcy process, it simply sets a minimum price for the company and allows other interested parties to participate in the tender. Sparc’s offer valued Brooks Brothers at $ 305 million, but when debt is considered, the company’s equity value is closer to $ 115 million, according to people with knowledge of the matter. The company recently announced that it would lay off workers at its U.S. factories in an effort to cut costs.
A possible offering being prepared by Solitaire Group CEO David Jackson and private equity executive Jackson Eisenpresser is likely to also value the company at around $ 300 million, but could try to compete with others by promising to maintain a significant presence in the US, Possibly keeping more stores and factories in the US open, people with direct knowledge tell FOX Business.
Jackson was notably CEO of Dubai-based Istithmar World, which owned the high-end retailer Barneys from 2007 to 2012. Jackson also attempted a bid when Barneys was auctioned again last year, and along with Eisenpresser, has met with Middle East sovereign wealth funds for additional financing.
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The association has also been assembling a management team for the new company if it bids and wins the contest that will include clothing store veteran Peter Rizzo, who was president of the luxury department store Bergdorf Goodman, these people added.
People close to Jackson say his plan is to keep the Brooks Brothers franchise intact and continue to manufacture clothing independently of other brands; This sets it apart from other physical education firms that may plan to incorporate it into another brand while continuing to use the Brooks Brothers label.
Another bidder in the mix is investment company WHP Global, which manages brands like Joseph Abboud and Anne Klein. It is unclear what his plans for the brand are at the moment or if Brooks Brothers’ stores or factories will close.
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In a statement to FOX Business, a WHP spokesperson said: “They are the first entries in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by funds managed by Oaktree Capital & BlackRock, is a bidder. We are strong believers in the power of the Brooks Brothers brand, global footprint, and management team. We can’t wait to compete at the auction, that’s when the future of Brooks Brothers will be determined. “
A Solitaire representative had no comment.
“Unlike 2008, we will not see the same rapid recovery” in the economy that will help the struggling retail sector, Eric Snyder, a partner at Wilk Auslander and chairman of the firm’s bankruptcy department, told FOX Business. “It is not a disease, it is a baseball bat on the head” of the American consumer.
The problem for potential bidders is not just the closing of retail stores, but also whether to maintain production in the United States. One of the hallmarks of Brooks Brothers has been that its clothing is made in the United States. But now, as cost cutting becomes a pre-eminent concern, the three US factories employing around 1,000 people may be forced to close.
Sparc will keep around 125 of the more than 250 U.S. stores open, according to people with direct knowledge of the matter, but it’s unclear what it will do with the factories. Other bidders are said to be formalizing their plans for offices and factories.
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As the court hears various offers for the landmark brand, it can consider not only the price, but also the business plans these companies will enact – that is, how many retail stores and factories will be kept open, and how many jobs will be saved. The factories employ about 400 of a total of 4,000 Brooks Brothers employees.
Ultimately, it is up to the bankruptcy judge to hear the case to decide which offer is best. Several other players are competing to discover how to beat this “stalking horse” or initial offer.
Brooks Brothers, as FOX Business first noted, filed for Chapter 11 bankruptcy for reorganization in a Delaware court on July 8. Judge Christopher Sontchi set August 5 for the day other offers can be submitted and August 11 for the hearing process to begin.
Founded in 1818, the legendary brand is part of the fabric of American retail trade history: it equips 41 of the 45 US presidents, from James Madison to Barack Obama. Most recently, President Donald Trump wore a Brooks Brothers suit on his opening day.
Despite its famous reputation, Brooks Brothers is in a slump: The company’s sales have hovered around $ 1 billion since 2017 as casual wear and athletics become more acceptable in the workplace. Analyst estimates suggest that sales will drop 30 percent this year, as the pandemic recession further erodes sales. In the past, the company has said it will not make a profit until 2022.
Brooks Brothers joins others in the troubled retail sector. Neiman Marcus, J. Crew and Lucky Brand have filed for bankruptcy since the coronavirus outbreak and the blockages that followed.
Despite his financial problems and struggling to reach younger consumers Brooks Brothers is seen as a valuable brand among people from older demographics with higher incomes, so it continues to attract investors, people close to the bidding process say.
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