Where Was Oldcastle Glass? USGNN.com
Looks at Objections in Arch Aluminum Bankruptcy
January 13, 2010
In the "emergency motion" Oldcastle Glass filed last
week in an attempt to become a bidder in today's auction for the
sale of Arch Aluminum & Glass Co. Inc.'s assets (CLICK
HERE for related story), Oldcastle Glass claimed that it was
not "afforded fair and impartial treatment by the Debtors and
their representatives" during the course of the bid process.
Although the U.S. Bankruptcy Court Southern District of Florida
later denied the motion, the questions raised by Oldcastle Glass
were not addressed by that ruling.
USGNN.com spoke to Michael Collins with Jordan, Knauff &
Co., an investment banking firm specializing in the door and window
industry, but unconnected with the current case, for an insider's
look at such proceedings.
In its emergency motion, Oldcastle Glass stated that although "Piper
Jaffray [cited as Arch's investment bankers] 'engaged in an exhaustive
marketing process prior to the filing of [the Debtors'] Chapter
11 cases to locate
potential purchasers for the Debtors'
assets' and '[i]n total, 149 potential buyers were contacted,' Oldcastle
Glass, a rather obvious candidate given its position as a significant
participant in the same market segments where the Debtors are doing
business, first became aware of the Debtors' assets sale the date
the Debtors filed their bankruptcy petitions. The fact that a company
that quite obviously has a significant ability to bring real value
to the table as a strategic purchaser is being singled out for a
differential treatment and additional bid obligations indicates
that the process is flawed," the motion said.
But is a competitor of the bankrupt company an "obvious candidate?"
According to Collins, "Absolutely."
Collins explains that for many investment bankers looking to sell
a company in a given industry, the first step is to compile a target
list of buyers, typically starting with competitors.
"They are the obvious candidates because theoretically they're
the ones that could immediately fold the company in. The customers
of the company that's bankrupt are nervous and they're asking, 'If
we make an order is it going to get filled? What's going to happen?'
If somebody steps in and buys them that gives them the immediate
comfort that 'Okay it is going to be there to back-order, and XYZ
that bought it is a good company and they're going to be around
so therefore my orders will get filled - and so therefore I won't
go down the street to so and so and start buying from them. That's
And, as Collins reminds us, at this point in the proceedings, every
action taken should be in the best interest of the creditors, not
the management team.
"If you look at an ongoing business that's owned by Joe Entrepreneur,
and he's going to sell his business, a lot of times they're more
comfortable selling to a private equity fund because they believe
that the private equity fund will keep all the employees and the
key management people in place. Because they don't want to go run
that company, they want to go on and buy the next company so they
want to leave the management team in place.
"There's what we call a 'strategic' - meaning somebody that's
already in the business - versus a 'financial' buyer or private
equity fund. If you said to me, 'tell me which one of these two
was more likely to replace the management,' the strategic is much
more likely to replace the management team."
However, Collins points out, "Theoretically, the creditors
shouldn't be taking that into account. That's the kind of difference
that really gets taken into account by an entrepreneur who cares
about his management team. The creditors' primary concern is getting
the maximum proceeds from their debt."
Again, although unconnected with the current case, Collins offers
another consideration that some companies might take into account
in excluding one bidder over another.
"The only other reason I can think of to prefer a private
equity fund over other bidders is that they may believe, or have
been told, the private equity could do an all-cash offer and act
quickly because there weren't financing contingencies.
almost like buying a car; you don't ever go buy a car and then go
try to get somebody to finance it for you, you do it all at once.
The strategic buyer typically needs to do it all at once, he needs
to have a bank come in and give him money to loan, but an equity
buyer can just cut a check for a company even that large size, and
go back and get borrowing on it later. And it might be better for
him to do that, because later down the road the company might be
healthier and it might be easier for him to get financing."
Oldcastle Glass also stated in the emergency motion an objection
to Piper Jaffray's advisement that Oldcastle Glass' access to the
"electronic data room" be restricted.
According to Collins, in similar such cases, restricting sensitive
buyers' access to proprietary information is a reasonable protection
to take on behalf of an eventual buyer.
"If there's sensitive information, such as pricing and margin
information, it would be very critical if I let you look at the
company but you don't end up buying it-but you know my margins and
you know my pricing. You're out there chugging along in the market
and you can use that against me immediately, whereas I just bought
the company and I need to get my feet underneath me
be able to outbid me on jobs because you know what kind of margins
I put into my bids.
"We refer to it as Level 1 and Level 2 information. Level
1 is what you give every Tom, Dick and Harry, and Level 2 is when
you get down to a final couple of groups, or maybe even one group
because they're going to be the final bidder. A perfect example
is customer names. In our deals, only one buyer ever sees the customer
names. Everybody else, when they get a sheet that describes customers
they see customer A, B, C and D. So it is responsible for the investment
bank to protect the [client]."
As Collins points out, what buyer would want a company that offers
no proprietary information?
Collins adds, "It is legitimate to not give everyone the same
information - except that it mitigates it a little bit when you're
in a distressed situation like this. Creditors theoretically don't
care about who gets what, they just want the maximum proceeds for
their part of it. So it's a little bit different between an entrepreneur
selling and a creditor committee selling, but it's still the same
dynamics. You don't throw the doors wide open because that final
buyer might say, 'well if you gave everybody that information I
don't want to buy this thing, I'll just take my chances in the market
competing against you.'"
Whatever the reason, Oldcastle Glass was not among the bidders
in an auction scheduled for today of the assets of one of its largest
Representatives of Piper Jaffrey had not offered a comment on this
article as of press time.
Representatives of Oldcastle Glass have declined to comment.
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