by Delays in the process ultimately revealed a clearer window into the retailer’s financial challenges
COLUMBUS, Ohio — Describing a tireless effort over many months to close the purchase of Big Lots, Nexus Capital Management withdrew its offer to purchase the company having faced what it described as numerous delays and a clearer view of the beleaguered retailer’s financial situation.
Those were among the key conclusions of Nexus Capital Management Managing Director Evan P. Glucoft in a Jan. 3 declaration filed with the United States Bankruptcy Court for the District of Delaware, where the retailer filed Chapter 11 bankruptcy in September.
As part of the proceedings, Los Angeles-based Nexus was identified as the stalking horse bidder for Big Lots, which announced the day of its filing that it had entered a sale agreement with an affiliate of Nexus. The affiliate was identified as Gateway BL Acquisition, a division of Nexus.
Nexus also has filed a motion with the court to force Big Lots to release from escrow the deposit for the purchase originally due Dec. 24 along with $1.5 million of the $2 million expense reimbursement that it said was due Dec. 30. In a Dec. 31 letter filed with the court Jan. 3, Nexus said it had received neither amount.
“The seller’s violation of the court’s sale of order and failure to honor its contractual obligations under the purchase agreement has left the buyer with little choice but to immediately seek relief in the bankruptcy court, including recovery of buyer’s legal costs,” Glucoft wrote.
In his declaration, he went on to note that Gateway initially was trying to close the sale as quickly as possible to avoid additional administrative costs that would reduce the value of the post-reorganized assets that Gateway would own. “While there were delays, they were not attributable to Nexus,” the declarations stated.
He said that on Nov. 26, Big Lots provided financials that “showed a deterioration to the debtor’s business. Gateway initially believed the shortfall was manageable and continued to work in good faith to close,” adding that the company sought to identify solutions that would provide capital to fund the purchase.
“Gateway was open-minded to the form that capital and savings could be realized, whether it be in the form of payment holidays and/or reduction in claims in exchange for equity in Gateway, or capital infusion through additional financing or equity from existing stakeholders or strategic parties interested in the investment.”
Ultimately, he noted, various parties were not interested in contributing to a solution, while those that did show interest required terms or a timeline that “would not be feasible without delaying the closing or deepening the shortfall.”
Further, the declaration noted, “as Gateway received more information, it became increasingly clear that the financials provided by the debtors did not fully reflect the depth of the business underperformance and shortfalls,” adding that the debtors continued to miss their revised lower forecast for November and also revised December projections lower and increased their exit costs including fees, expenses and other costs.
Glucoft noted that updated business forecasts showed a collateral shortfall of about $103 million for the week ended Nov. 30 and about $85 million for the week ended Dec. 7.
He said that while Gateway was trying to salvage the deal versus exercising its right to termination, it learned of two other developments that led it to reconsider, including an imminent breach of the DIP that had not been disclosed on its disclosure schedule. Gateway also learned that to allegedly “avoid the DIP lenders exercising remedies due to DIP defaults,” the company was “entering into contracts and taking steps to liquidate the business (including the purchase of millions of dollars’ worth of GOB signage) which worsened the financial situation, hurt employee morale and breached the APA (asset purchase agreement).”
Finally after the debtors received court approval to liquidate approximately 850 stores that Gateway intended to acquire, Gateway terminated the APA as “there was no longer any realistic possibility to close.” It issued its termination notice on Dec. 21.
Big Lots has not yet responded to a request for comment for this story.
In late December, following the announcement that the deal with Nexus had fallen through, Big Lots announced it agreed to a sale transaction with Gordon Brothers Retail Partners LLC that enables the transfer of Big Lots assets, including stores, distribution centers and intellectual property, to other retailers and companies, including Variety Wholesalers Inc.
On Jan. 3, Big Lots announced that it closed the sale agreement with Gordon Brothers Retail Partners LLC. This transaction will allow Variety Wholesalers Inc. to acquire between 200 and 400 Big Lots stores, which the company said it plans to operate under the Big Lots brand, and up to two distribution centers.
The company noted that Variety Wholesalers also may employ Big Lots associates at the acquired stores and distribution centers along with certain “corporate associates needed to support Big Lots’ go-forward footprint.”
Variety Wholesalers owns more than 400 retail stores in the Southeast and Mid-Atlantic United States under the Roses, Roses Express, Maxway, Bill’s Dollar Stores, Super 10, Super Dollar and Bargain Town banners.
