Inside Bumble Bee’s long summer of selling itself
On 21 November, the same day it filed for chapter 11 bankruptcy protection, Bumble Bee Foods announced it had entered into an agreement with FCF Co., its primary supplier of tuna, which agreed to acquire the company’s assets for approximately USD 925 million (EUR 836 million).
In a statement accompanying the announcement, Bumble Bee President and Chief Executive Officer Jan Tharp said she “anticipates that the transaction will move swiftly and close within 60 to 90 days.”
“It’s been a challenging time for our company but today’s actions allow us to move forward with minimal disruption to our day-to-day operations,” Tharp said. “We have an experienced leadership team in place and plan to transform our business in bold and innovative ways that will build a legacy worthy of our proud 120-year-old history.”
Signs the company would have to take drastic action to prevent insolvency first emerged in August 2017, when the company struck a deal with the U.S. Department of Justice to lower the criminal fine it would pay as a result of guilty plea to its involvement in a price-fixing conspiracy. The company showed proof to the Department of Justice, which was prosecuting the case, that a higher fine would force it into bankruptcy, and the judge in the case agreed.
The plan to sell either part or all of the company began to take place early in 2019, with The Wall Street Journal reporting that it was exploring a sale of its Canadian arm subsidiary, Clover Leaf. In early August, Bloomberg was the first to report Bumble Bee was considering a bankruptcy filing to alleviate it of an increasingly dire financial situation. But that consideration was only made after the company made significant efforts to restructure itself, new court documents show.
On July 10, 2019, Bumble Bee entered into a restructuring support agreement with its major stakeholders, laying out three potential avenues for reorganizing its finances. The first path called for an out-of-court settlement in regard to all the civil litigation related to the price-fixing, paid for by an infusion of junior debt capital, “thereby substantially reducing [Bumble Bee’s] total outstanding liabilities.” An alternative approach involved the pursuit of an in-court transaction through a prearranged chapter 11 plan of reorganization, the company said. A third plan, to be considered if the previous two failed, required the sale of the entire company.
“But despite the debtors’ concerted efforts, these paths proved unattainable, as settlement negotiations with certain civil-litigant contingencies stalled, actionable junior fundraising proposals failed to materialize, and the debtors’ term loan lenders were no longer willing to permit the indefinite use of their cash collateral to fund an open-ended effort to settle the civil litigation,” Bumble Bee said in a court filing.
The documents confirm that Bumble Bee sought to sell Clover Leaf as an interim measure intended to raise much-needed cash for the parent company. Bumble Bee contracted with Houlihan Lokey to seek out a buyer for Clover Leaf in early 2019, and the investment bank contacted nine potentially interested parties, all of which were strategic buyers. Four interested parties signed non-disclosure agreements and received a confidential information memorandum that provided a comprehensive overview of Clover Leaf’s business, according to Bumble Bee. Three interested parties moved to the next stage of the process, submitting an indication of interest by 28 May, 2019, and were asked submit formal written proposals to acquire the Clover Leaf business or its assets prior to 22 July. One interested party subsequently submitted a formal proposal, known as a letter of interest.
But the consummation of the deal was stymied when Bumble Bee heard from potential lenders that they were unwilling to commit to a recapitalization unless the company was able to settle a critical mass of its civil litigation.
“As a result, the company, with the assistance of its advisors, concluded that it was in its best interests to terminate the Canada-only sales process and explore additional options for restructuring or recapitalizing the entire business, including marketing the entire company for sale, either to a single buyer of the company as a whole or to multiple buyers acquiring the component parts of the company,” Bumble Bee said in a document filed as part of its bankruptcy filing.
In late August, Bumble Bee began in earnest the process of selling itself, with a formal “special restructuring committee,” composed of independent directors Scott Vogel and Steven Panagos, formed on 20 September.
“While the [committee] continued to consider settlements with civil litigants and related strategic alternatives, [it] focused the debtors’ efforts on conducting a thorough marketing process for a going-concern sale,” Bumble Bee said.
Once again, Houlihan Lokey was given the task of marketing the company. It contacted 190 separate companies – 66 strategic buyers and 124 financial buyers – between late August and October 2019.
“A number of these parties were already familiar with the debtors’ operations based on Houlihan Lokey’s prior efforts to raise junior capital financing and its efforts in connection with the Canada-only sales process,” Bumble Bee said.
Approximately 65 parties entered the first phase of commitment, signing non-disclosure agreements and receiving a confidential information memorandum containing a comprehensive overview of Bumble Bee’s businesses. In parallel with this effort, Bumble Bee negotiated the terms of a purchase agreement with its the term loan lenders, who submitted a credit-bid proposal on 21 September. But following the submission of indications of interest by 11 parties by the 30 September deadline, a number of which “may have slightly exceeded the value of the credit-bid proposal advanced by the term loan lenders,” the lenders “focused on the assessment and support of the third-party bidders in the process,” according to Bumble Bee.
Based on a review of the 11 acquisition proposals received, Houlihan Lokey advanced seven bidders to a second round of diligence, who were given until 30 October to submit final offers. Three of those bidders ultimately submitted bids.
“Based on their review of the proposals received, the debtors focused their attention on the bid submitted by affiliates of FCF, which the SRC concluded was the highest or otherwise best offer among the final bids,” Bumble Bee said. The documents it submitted do not name the other finalists or the price they were willing to pay for the company’s assets.
FCF’s offer, which may be increased to USD 930.6 million (EUR 845.6 million) if Bumble Bee’s debt rises by the date of the transaction’s closing, includes a combination of USD 275 million (EUR 249.9 million) in cash, up to USD 638.6 million (EUR 580.3 million) of new senior secured financing in the form of rolled-over term loan indebtedness, and FCF’s assumption of the remaining USD 17 million (EUR 15.5 million) balance of Bumble Bee’s criminal price-fixing fine.
Also included in Bumble Bee’s bankruptcy filings is a review of its financial status. In 2018, the company sold more than 20 million equivalent cases of product, resulting in net sales exceeding USD 933 million (EUR 848 million) and an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of USD 112.3 million (EUR 102.1 million). Bumble Bee’s U.S.-based operations contributed USD 722.2 million (EUR 656.4 million) of its total net sales and an adjusted EBITDA of USD 86.3 million (EUR 78.4 million). The totals put FCF’s bid for Bumble Bee at a value of 8.2 times Bumble Bee’s earnings.
A request by Bumble Bee to have FCF named as a "critical vendor," which would have given FCF priority in the line of creditors awaiting payment from the tuna firm, was denied by the judge overseeing the bankruptcy case, though a request by Bumble Bee to immediately pay FCF USD 12 million (EUR 10.9 million) of the more than USD 50 million (EUR 45.4 million) it is owed was granted.
FCF already owns a passive, minority equity interest in the Bumble Bee through its 23 percent partnership interest in Big Catch Cayman LP, Bumble Bee’s holding company. To secure its position as a stalking-horse bidder in the transaction, FCF has deposited USD 69.4 million (EUR 63.1 million) in escrow. It faces a break-up fee of USD 27.8 million (EUR 25.3 million) plus fees of USD 2.5 million (EUR 2.3 million) if it decides to terminate its agreement.
The auction, where other interested parties may try to outbid FCF to purchase Bumble Bee, is scheduled for 17 January at 10 a.m. at the offices of Paul, Weiss, Rifkind, Wharton, and Garrison LLP, in New York City. Bumble Bee said it will instruct Houlihan Lokey to continue to actively market the tuna firm “to achieve the highest or otherwise best offer for the company’s business.”
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