Best Products re-enters Ch. 11; vendors vie to recover shipped goods - Chapter 11 bankruptcy protection

Discount Store News, Oct 7, 1996 by Richard Halverson

RICHMOND., VA. - The future looks murky for Best Products, which last month filed for Chapter 11 bankruptcy protection two years after emerging from a 1991 filing.

The move to gain protection from creditors came less than a week after an investment firm withdrew its offer to buy the company for $63 million and creditors began filing law suits to recover merchandise.

In announcing the filing, Best Products said that it had obtained a $250 million debt or-in-possession credit line from CIT Group/Business Credit, subject to bankruptcy court approval. The chain listed assets of $710.1 million and $533.5 million in liabilities.

The largest unsecured creditors are: Fisher-price, $5.4 million; Braun, $4.9 million; Icon Health and Fitness, $3.5 million; Thompson Consumer Electronics, lion; and Philips, $3 million. Companies that also owe substantial amounts are the State of California (tax payment due), $2.9 million; Sharp Electronics, $2.6 million; O'Sullivan Industries, $2.1 million; Black K. Decker Housewares, $2.1 million, and Seiko Time, $2 million.

Best Products chairman and ceo Daniel Levy said, "The decision to file was a difficult one. Best Products has been considering all its alter natives, including the consideration of a proposed offer of a merger made by Ocean Reef Management, which was withdrawn, However, in the circumstances of contracting credit an the necessity to preserve the value of the assets and properties of Best Products" required immediate action.

Sharpening the need for action were Sharp Electronics, which had filed suit to recover $2.6 million worth of goods it recently shipped, and O'Sullivan Industries, which had filed suit to get back $1 million in RTA furniture.

Best Products won a federal ruling to continue to sell the Sharp goods, but it must put the proceeds into escrow. O'Sullivan is seeking the same kind of protection. The status of that escrow provision under Chapter 11 remains undetermined.

Ken Gassman, retail analyst for Davenport & Co., Richmond, Va., had warned after Sharp filed suit that vendors could force the company into involuntary bankruptcy before Best Products had a chance to file Chapter 11.

Another sign of trouble: Dan Younkman, vp of stores for the eastern region, quit to join Sports SL Recreation as its senior vp, operations. Liquidity Problems surfaced publicly in mid-September when Ocean Reef, the same company that recently bought a controlling interest in Luria & Sons, withdrew its $2 per share offer to buy Best less than two weeks after it made the offer.

In the wake of Ocean Reef's offer of $2, per share on Sept. 3, the price of Best Products stock rose 5/16, or 24%, to $1.625 per share. But the stock price then sank by $1 to 62.5 cents even before Ocean Reef withdrew its offer.

Best lost money for the last five quarters, Including $34.7 million in the first quarter of 1996, on top of a net loss of $95.7 million in '95 including a 47.7 million restructuring charge. It lost $31.5 million more in its second quarter on sales that declined 14% to $268 million from $311.8 million a year earlier, it disclosed in an SEC filing. Comp store sales plunged 16.1% for the quarter and 11% for the half.

Rachmill Lekach, chief executive of Ocean Reef and now also of Luria & Sons, said that he planned to reposition Best Products to follow the same merchandising strategy as Luria, a conversion into an upscale women's superstore that would focus on six or seven key categories, including perfume.

Best, which dropped its catalog this year and is moving toward a self-service format, operates 169 stores, after closing 10 in the first quarter. It also operates 11 Best Jewelry stores and a national mail order service.

The company said nothing immediately about closing additional stores, however, industry sources said Best is already shopping units. GOB sales may be imminent. Levy said that restructuring into "a more customer-friendly retail format" will continue under Chapter 11.