Sun Capital Affiliate Says its Bid for Vitro America, Subsidiaries, Should Serve as “Stalking Horse” Offer
May 4, 2011

American Glass Enterprises LLC (American), an affiliate of Sun Capital Partners, has placed a bid for Vitro America and its subsidiary U.S. companies’ (the Debtors) and filed and objection to the Debtor’s Motion for Entry of an Order: Approving Bidding Procedures and Bidding Protections in Connection With Sale of Substantially All of the Debtors’ Assets, Establishing Procedures to Determine Cure Amounts and Deadlines for Objections for Certain Contracts and Leases to Be Assumed and Assigned by the Debtors, Scheduling a Hearing on the Sale Motion; and (D) Granting Related Relief. American’s firm bid would provide the Debtors with $2.3 million of value above that of the proposed bid from Grey Mountain. According to court documents, “unlike Grey Mountain’s bid, [America’s] seeks no break up fee protection. To ensure that the Debtors’ proposed asset sale maximizes value, American’s higher bid should serve as the stalking horse or ‘floor’ bid that other bids must trump at auction.” The documents say that Grey Mountain’s proposed stalking horse bid “undervalues the Debtors’ assets and, therefore, should not serve as the baseline bid at any auction of the Debtors’ assets.”

In addition, America’s objections notes that its “willingness to provide a bid with no break up fee demonstrates that granting Grey Mountain’s requested break up fee of 3 percent of the purchase price would be an unnecessary waste of estate resources, resources that otherwise would be available to satisfy creditor claims,” and that Grey Mountain’s break up fee request should be denied.

On April 6, 2011, an order for relief under Chapter 11 of title 11 of the United States Code was entered with respect to the Debtors. On April 7, 2011, the Debtors filed the Bid Procedures Motion, requesting that the Court approve bid procedures with respect to a sale of substantially all of its assets. As part of the Bid Procedures Motion, the Debtors filed a stalking horse asset purchase agreement, wherein Vitro American Acquisition Corporation, an affiliate of Grey Mountain, proposed to purchase the Debtors’ assets for a purchase price of $44 million and serve as the stalking horse bidder at any auction of the assets. The Bid Procedures Motion also requests authority to pay a break up fee of 3 percent of the purchase price to the stalking horse purchaser in the event of a successful closing to a higher bidder and, among other things, requires that the initial overbid of other bidders exceed the sum of the $44 million purchase price and the break up fee.

According to court documents, American is a creditor in these cases and an affiliate of Sun Capital Partners Inc., which also owns Arch Aluminum & Glass, a competitor to Vitro America. The objection alleges that during the Debtors’ marketing of its assets, American, through Sun Capital, expressed its interest in purchasing those assets. Despite this indication, “the Debtors and their advisors did not seek to engage American or Sun Capital in discussions regarding the asset sale at any time prior to the filing of the Bid Procedures Motion. Indeed, prior to the filing of the Bid Procedures Motion, potentially perceiving new employment opportunities with a financial buyer like Grey Mountain, the Debtors specifically excluded Sun Capital and Arch from their marketing and sale process,” read the court documents, which add that “it was not until April 12, 2011, after repeated requests from Sun Capital, that the Debtors entered into a confidentiality agreement with Sun Capital and began to provide Sun Capital with due diligence.”

Court documents go on to say the Debtors continued to exclude Arch from the sale process, and that on April 14, 2011, American sent a letter to the Debtors, “expressing its desire to purchase substantially all of its assets on substantially similar terms and conditions to Grey Mountain except American offered a purchase price of $45 million and indicated that it would forego a break up fee.” On May 2, 2011, American submitted an asset purchase agreement to the Debtors “that memorialized these terms and further provided that, within three business days of entry of a bid procedures order, American would provide the Debtors with a $5 million deposit ($3 million more than the deposit offered by Grey Mountain).” American says its bid provides greater value to the Debtors’ estates and, to ensure the Debtors obtain the highest price for their assets, should serve as the stalking horse bid to beat at auction. American’s objection says “allowing Grey Mountain’s lower bid to be the stalking horse bid would start the bidding too low, undervaluing the Debtors’ assets by over $2 million to the detriment of the Debtors’ estates and creditors.”

The objection also says that if Grey Mountain continues to be the stalking horse bidder, at minimum, it should not be entitled to any break up fee. “It is clear from American’s willingness to be the stalking horse bidder … without any break up fee protection, that a break up fee is not necessary to preserve the value of the Debtors’ estates,” notes the objection.

In addition, court documents say that to further facilitate bidding and ensure the Debtors obtain the highest value for their assets, the bid procedures should be modified to eliminate the requirement that good faith deposits made by unsuccessful bidders can be retained by the Debtors until five days after the sale with the successful bidder closes and clarify that bidders are entitled to refuse to have their bids serve as Back-Up Bids. These modifications would serve to alleviate likely concerns of potential purchasers that even if they lost at the auction their capital would still remain committed and tied up to their unsuccessful bid while the Debtors pursue closing the sale with the winning bidder.

At press time representatives from neither American Glass Enterprises/Sun Capital nor Vitro American had responded to™’s requests for comments.

Stay tuned for more updates as they are made available.

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