Expressing a deep concern that the bid by BB Brands LLC is not one that guarantees that if it emerges as the winner in the auction for Borders BBB will continue to operate the chain as a going concern, the creditors committee has filed an objection asking the bankruptcy judge to deny Borders bid procedures motion as well as the breakup fee for BBB. The committee said it would support the bidding procedures and the naming of BBB as the stalking horse bidder if the bid included a firm commitment by BBB to operate Borders as a going concern. "Unfortunately, it does not," the motion states. If the judge does not want to deny the motion, the committee requested that Judge Glenn at least modify the motion to include a commitment from BBB to continue to operate Borders.
In its objection, the creditors committee notes that the Borders bid procedures acknowledges that BBB could, after winning the auction, decide to liquidate the entire chain while retaining such intellectual property as the Borders name and intellectual property rights. That process would generate less cash than accepting the backup bid by the liquidators and then selling other assets separately, the committee argued. Since the stalking horse bid does not provide the best way to maximize Borders’s value, BBB should not be entitled to receive the $6.45 million breakup fee.
Although its present bid of $215 million in cash and $220 million in assumption of debt is not enough to make it the lead bidder, the committee notes that it “is hopeful that BB Brands will submit a revised bid prior to the Bid Deadline and proceed in the Sale process without the need for a Break-Up Fee or other bid protection with a concern proposal.” According to the committee, the liquidation of Borders inventory by the liquidation group would generate between $252 million and $284 million in cash as well as leaving other assets available for sale, a combination that would return more money to the creditors than the Borders original proposal.
Judge Glenn is expected to rule on the Borders motion and objections at a court hearing Thursday morning.
The list of the creditor’s objections is filed below.
· Transaction Structure. As currently structured, the Bid Procedures will allow the Stalking Horse Bidder to purchase substantially all the Debtors’assets, reject the Debtors’ executory contracts and unexpired leases, liquidate the entire chain of retail locations and retain valuable intellectual property and other assets for less consideration than the Back-Up Bid. The Stalking Horse Bid is not a definitive going concern offer because it allows the Stalking Horse Bidder the option to conduct a Full Chain Liquidation after the Sale Hearing is completed and the Sale is approved. Such a proposal is not acceptable to the Committee. The Debtors should not be permitted to designate a Stalking Horse Bid which the Committee objects to when there already exists a better alternative bid that does not require a Break-Up Fee.
· Stalking Horse Bid. The Debtors have designated the Bid of BB Brands as the Stalking Horse Bid, but have not established that such bid is currently the highest and best offer for the Debtors’ assets and therefore worthy of designation as the Stalking Horse Bid. The Committee believes that the Back-Up Bid provides greater value to the Debtors’ estates than does BB Brands’ Bid and, therefore, the Back-Up Bid should be the Stalking Horse Bid. BB Brands would, of course, have the right to bid at the Auction and the Committee hopes that Would submit a bid that provides for a going concern business.
· Break-Up Fee. The Debtors seek Court approval of a $6,450,000 Break-Up Fee in conjunction with the Stalking Horse Bid. Motion, pp. 3, 13 and 21. The Break-Up Fee is objectionable because the Stalking Horse Bid is not a true going concern offer and there is already another bid (the Back-Up Bid) in place that does not require a Break-Up Fee. Further, while the Debtors assert that the Stalking Horse Bidder would not have submitted its offer without the Break-Up Fee, (Motion, p. 4), the Motion does not clearly establish under what circumstances the Stalking Horse Bidder becomes entitled to the Break-Up Fee. Finally, the Debtors have failed to justify the amount of the Break-Up Fee.
· Form of Bids. The Debtors propose to consider only Bids for a GC Sale, a Remainder Chain Liquidation and Full Chain Liquidation. Motion p. 18; Bid Procedures, p. 2. In order to maximize the potential value to be generated through the asset Sale, the Bid Procedures must allow bids for individual asset categories such as intellectual property and real property leases subject to the Committee’s rights in the Second Amendment and Waiver to the DIP Credit Agreement.
· Consultation. Although the Debtors generally state that they intend to consult with the Committee and the DIP Agents on an ongoing basis throughout the Sale and Auction process, (Motion, p. 21; Bid Procedures, p. 14.), the Motion and Bid Procedures, indicate that the two most critical and crucial decisions in the Sale process--deciding whether to conduct an Auction, and selecting the winner of the Auction--do not require consultation with the Committee. Further, key decisions designed to ensure that the Debtors receive maximum value for the assets such as (i) changing the Bidding Interval, and (ii) deciding whether to separate the Auctions (Bid Procedures p. 11), will be made in consultation with the Stalking Horse Bidder, whose obvious objective is to pay as little for the assets as possible. Allowing the Stalking Horse Bidder a voice in such decisions is counter-productive and should not be authorized.
