Bankrupt Forever 21 has a new lifeline through an $81 million deal to sell the company’s assets to Authentic Brands Group and its two largest landlords, Simon Property Group and Brookfield Property Partners.
The retail chain is seeking permission from a Delaware bankruptcy court to name the group as the so-called “stalking horse” bidder for the company. Any bidder looking to enter the fray needs to file a counteroffer by Friday. If other bids are submitted, a bankruptcy court sponsored auction will be held on Feb. 10. If there are no other bidders, Forever 21 will ask for approval of the court to sell its assets to the stalking horse consortium.
In bankruptcy parlance, the stalking horse essentially sets the base price for a sale. Any forthcoming bidder that successfully outbids the stalking horse group also needs to pay reimbursement expenses and a break-up fee in the $4 million range, according to a court document filed Sunday. The reimbursement expense is to compensate the stalking horse bidder for due diligence expenses connected to putting together the initial offer, while the break-up fee is essentially the incentive for agreeing to the deal to spur others to join in on the bidding. If no bidder enters the bidding process, the auction would be canceled and the consortium would be obligated to proceed with its purchase agreement.
Forever 21’s assets up for sale include its intellectual property, remaining store locations and the beauty and wellness concept RileyRose. The latter was started by the daughters of Forever 21’s co-founders, Do Won and Jin Sook Chang, in 2017.
While Forever 21’s advisors have been working on finding either an investor or a buyer, a greater push was made two months ago when it became clear the retailer’s “access to liquidity under the [debtor-in-possession facilities] came under pressure in mid-December,” a court document filed with the bankruptcy court said.
ABG and Simon have experience in the current structure of the proposed purchase, having teamed up back in 2016 with General Growth Properties to buy essentially the same assets to take teen chain Aéropostale Inc. out of bankruptcy for $243.3 million. That ABG-led group kept roughly 300 Aéropostale stores open and saved more than 5,000 jobs.
The Aéropostale blueprint is essentially the same as the one likely planned for Forever 21, with the two real estate investment trusts working with ABG in a joint venture partnership. As a brand licensing firm, ABG would take control and ownership of Forever 21’s intellectual property assets. That move allows it to work on licenses for the brand, such as expanding Forever 21 into new international markets. Because ABG on its own doesn’t operate stores, the only way it would be able to keep stores open is to find a partner to handle the retail operations, and that’s where Simon and Brookfield come in. The two REITS have an incentive for keeping the stores open to curtail some of the vacant mall space that would open up should the fast fashion chain face liquidatation.
What remains unclear is what roles the Changs may have, if any, following the sale of the chain.
What is clear, however, is that moving into structures outside of the usual brand management wheelhouse is something ABG is comfortable doing. In addition to the Aéropostale deal, ABG acquired HMX Group out of bankruptcy in October 2012, in a deal valued at $72 million. The deal included the Hart Schaffner Marx factories in Chicago and Rochester, N.Y., which ABG kept in operation by spinning off the operating arm to an entity called W DiamondGroup and hiring Doug Williams, former CEO of HMX, to run the show.
Most recently, ABG took control of bankrupt Barneys New York in a $271.4 million deal in October, working with B. Riley Financial Inc. While ABG opted to shutter the stores, the brand management firm did enter into a licensing agreement with Hudson’s Bay Co. to open Barneys New York shop-in-shops at select Saks Fifth Avenue locations. Hudson’s Bay acquired the Saks business in 2013 in a deal valued at $2.9 billion.
Forever 21 filed its Chapter 11 petition for bankruptcy court protection last September.