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NexCen Brands agrees to $112.5 million sale
May 12, 2010
A month after telling QSRweb.com NexCen Brands Inc. had made a turnaround and proven its business model, CEO Kenneth Hall announced today that the company has accepted a buyout offer. In the latest restaurant takeover, an affiliate of independent investment firm Levine Leichtman Capital Partners has offered to purchase the franchise business for $112.5 million. The offer is subject to a customary closing working capital adjustment.
Under the terms of the acquisition agreement, LLCP's affiliate Global Franchise Group LLC will acquire the subsidiaries of NexCen Brands that own the franchise business assets including all of NexCen Brand's interest in the Great American Cookies, MaggieMoo's, Marble Slab Creamery, Pretzelmaker, Pretzel Time, TAF (The Athlete's Foot) and Shoebox New York. The company also will acquire the NexCen's franchise management operations in Norcross, Ga., and its manufacturing facility in Atlanta.
The closing of the sale is subject to various conditions, including approval of the stockholders of NexCen Brands. The agreement does not provide for any post-closing indemnities. The transaction is expected to close in the third quarter of 2010.
Hall said in a statement that LLCP has a "proven track record of success in franchise management and extensive capital resources" and that the buyout offers the most favorable option for its stakeholders.
"We firmly believe that being a portfolio company of LLCP will provide our brands and franchisees with a new platform for growth and give our dedicated employees the opportunity to continue to manage and build these businesses," he said.
NexCen Brands has fought to stay solvent after acquiring Great American Cookies in 2008 and subsequently realizing an upcoming interest payment on its debt was larger than the company could handle. The company paid down its debt by $60 million and sold off its licensed brands to focus on franchising. After more than a year of posting significant net losses each quarter, the company reported finally reported positive operating income in its fourth quarter earnings in March.
In conjunction with the acquisition agreement, NexCen Brands and some of its subsidiaries entered into an agreement with their lender, BTMU Capital Corp. (BTMUCC), under which BTMUCC will accept a portion of the sale proceeds at the closing of the transaction to satisfy the outstanding indebtedness owed to the lender. NexCen Brands will retain the remainder of the sale proceeds, plus a portion of the cash on hand at closing for the benefit of other stakeholders.
The acquired franchise business is expected to be operated by LLCP through its affiliate as a cohesive, stand-alone business in its current Georgia location. The agreement between NexCen Brands and Global Franchise Group LLC also provides for management and personnel of NexCen Franchise Management Inc. and the manufacturing facility to continue with the business under its new ownership.
The transaction represents the culmination of a strategic review process that NexCen Brands undertook to identify and evaluate potential alternative approaches to addressing its current debt and capital structure, led by its investment banker Rothschild Inc. NexCen Brand's board of directors approved the sale to LLCP's affiliate for the benefit of all of its stakeholders, taking into account a range of factors that included the amount of NexCen Brand's outstanding debt, the current and anticipated value and performance of its existing business, anticipated future liquidity needs of the business, the likelihood of future defaults under the company's credit agreement and the potential availability of waivers or other cures for such defaults.
In order to deliver value to stockholders as promptly as possible, the board expects to approve and recommend to stockholders the adoption of a plan of dissolution that, absent the emergence of a higher value alternative, would be implemented after the closing of the sale transaction.
Subject to the resolution of existing and contingent liabilities and claims, as required by Delaware law, it is expected that this will result in a liquidating distribution to NexCen Brands' stockholders of a meaningful portion of the retained sale proceeds, although NexCen Brands cannot yet predict with certainty the timing or amount of any such distribution.
Lauren Leichtman, CEO of LLCP said, "We are extremely pleased to be acquiring this leading franchise management business, which is a perfect fit with our portfolio and industry experience. We believe that this franchise business will be able to better capitalize on the many opportunities for continued expansion under our ownership and as a private company. We look forward to working with the management team, led by Chris Dull, as well as with employees and franchisees to provide support for the operations and help drive future growth."
Earnings release change
The company will report its first quarter earnings pre-market May 17 and will hold a conference call on that same day at 8:30 a.m., in lieu of the previously scheduled earnings call, to discuss both the company's earnings and today's transaction announcement. The conference call may be accessed by dialing (800) 944-8766 or (317) 713-0002, access code: 27689. Additionally, a webcast of the call can be accessed at the company's websiteand will be archived online shortly after the conference call until June 17.
A replay of the live conference call will be available from May 18 at approximately 10:00 a.m. Eastern time until May 24 at 11:59 p.m. Eastern time. Dial (866) 281-6782, access code: 154227.
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