Boscov’s, the Mid-Atlantic department store operator whose roots stretch back nearly 100 years, has turned to
The Reading, Penn.-based chain, which had annual sales of roughly $1.25 billion in 2007, has reached terms on a “stalking horse” agreement with the Philadelphia buyout shop. The deal, in its present form, involves a cash payment of $11 million and the assumption of its assets and liabilities. According to court filings, the transaction carries a break-up fee of $4 million—a figure that Boscov’s stated represents less than 2 percent of the total value of the overall agreement. By that measure, the stalking-horse transaction would be worth less than $200 million. In its original Chapter 11 filing, Boscov’s listed its assets at $538 million against liabilities of $479 million, as of May 3.
Next, presumably, comes an auction, but nothing is ever straightforward in a court-run bankruptcy proceeding. According to a Bloomberg report on Sept. 26, the U.S. trustee overseeing the case has objected to the bidding procedures proposed in the agreement with Versa Capital, saying they “impermissibly” favor the firm.
The proceedings have a tight timeline. In its filing disclosing the agreement with Versa Capital, Boscov’s stresses the importance of getting a deal done ahead of the holiday season, a time that many retailers use to land in the black for the full year. If the company is still facing uncertainty into late October, it won’t be able to capitalize on this prime shopping season and the whole chain could end up closing its doors, a move that would put roughly 9,000 employees in Pennsylvania, Maryland, New Jersey and Delaware on the unemployment rolls.
Boscov’s joins the ranks of retailers that have faltered because of the credit crunch and the corresponding slowdown in consumer spending. The list of those filing for bankruptcy protection includes: Mervyn’s, Linens N’ Things and The Sharper Image, among others.
In the original statement announcing the letter of intent between the parties, Versa Capital said it plans to operate Boscov’s business post-closing. “Boscov’s is a true American retailing institution and its core store base provides for strong earnings potential going forward,” said Greg Segall, managing partner of Versa Capital, in the Sept. 19 press release. Versa Capital declined comment for this article.
The drama at Boscov’s has played out as the economy worsened since the start of the subprime mortgage mess in fall of 2007. The pullback by the consumer came at a particularly bad time for the chain as it followed an effort to expand following the cash-out of two principal owners in January 2006. In the wake of the recapitalization, Boscov’s purchased 10 stores, carrying the Strawbridge’s name and others, from Macy’s Inc., then known as Federated Department Stores, in February of that year.
Versa Capital typically targets North American businesses with annual revenue of between $50 million and $1 billion, or assets ranging from $25 million to $500 million. Its portfolio includes another retailer, Bob’s Stores, which the shop teamed with Boston-based