The asset sale of Global Motorsport Group Inc. (GMG) to Dae-Li USA Inc. for $16 million plus assumption of a long list of liabilities to more than 350 unsecured suppliers was approved Thursday by the judge handling Global's bankruptcy petition.
In an unusual move, say bankruptcy observers, the Morgan Hill, Calif., distributor negotiated a purchase agreement Jan. 28, then filed a Chapter 11 bankruptcy petition for reorganization of the company Jan. 31. As part of the purchase agreement, Global said it would file for bankruptcy later that month.
Since that time, Global has operated as a going concern.
It's unclear when the sale might close.
The list of unsecured creditors not included in the purchase agreement includes Susan Dodd, ($3.3 million), one of the founders of Motorcycle Stuff Inc., the metric distribution company and a GMG subsidiary; The Hog Farm ($1 million), an Ohio dealership; and David Sadler ($312,000), a former GMG executive.
The sale includes assets from GMG's U.S. operations, including its Custom Chrome, Motorcycle Stuff and Jammer divisions, and the stock of Global Motorsport Group GmbH, which manages all of GMG's European operations.
The primary owner of GMG is New York-based Cerberus Capital Management LP, through its subsidiary Ableco Finance LLC. Cerberus holds controlling or significant interests in companies with revenues of more than $60 billion, including Chrysler Automotive. It is one of the largest private investment firms in the world and manages investments worth more than $23 billion.
Dae-Il USA is a wholly owned subsidiary of Dae-Il Corp., a Korean manufacturer of parts for automobiles and motorcycles. Dae-Il has been a supplier of GMG and its predecessors since 1982 and manufactures the company's RevTech engines, transmissions and related driveline components.
Other customers of Dae-Il include Polaris, Hyundai, Kia Motors, Daewoo, Mitsubishi, Clark Forklift, John Deere, and Caterpillar.
Founded in 1972, Dae-Il had 2006 sales of $223 million, with most of that coming from auto parts ($117 million). While 2007 sales figures are not available, the company's plans called for it to generate sales of $257 million last year, with $135 million of that coming from auto parts. It operates three manufacturing plants in Korea.
The company went public in October, and its stock is traded on the Korea Stock Exchange.
The president of Dae-Il USA is Nace Panzica, the founder of Custom Chrome. Plans call for GMG to be run as a "stand-alone business," he said in a prepared statement. "We are committed to investing in GMG's product lines and outstanding customer service."
In announcing the moves last month, GMG management said the bankruptcy filing was made "to facilitate the sale process."
The sale/bankruptcy steps, in effect, allow Global's owners to include selected liabilities in the sale of the company, which would allow it to pay off parts suppliers necessary to stocking its future distribution operations.
In his order, Judge Kevin J. Carey noted that Global's sale request was "in the best interests of the debtors, their estates, their creditors and other parties in interest."
However, the committee of unsecured creditors does not appear to be too happy with the outcome. In a statement filed with the court on Feb. 26, the day after the deadline for submission of competing bids, representatives of the committee said its group "continues to believe that the expedited sale and short-term chapter 11 financing structure that was put into place before these cases were filed were carefully contrived to assure that no real, viable alternatives" could be developed.
"Quite simply," the statement says, "the process that was put into place prior to the bankruptcy filings virtually ensured that this sale to this stalking horse bidder" was an accomplished fact before the filings.
A stalking horse bid is an initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt company. This method allows the distressed company to avoid low bids on its assets. In essence, the stalking horse sets the bar so that other bidders can't lowball the purchase price.
Calling the proposed sale "the lesser of two evils," the committee said it did not want to give the impression that the action had the "support and blessing' of the committee.
Click here for a list of Designated Trade Obligations related to Global Motorsports Bankruptcy/Sale.