A committee of Performance Sports Group Ltd.'s shareholders has filed a legal objection to a proposed auction of the insolvent company's assets, arguing the bidding structure makes it too hard for anyone to compete with an offer tabled by a group led by Sagard Capital Partners LP.
An ad hoc committee of equity holders has filed a motion in a U.S. Bankruptcy Court in Delaware seeking a delay in the proposed bidding timetable for PSG, which gives potential bidders until Jan. 4 to submit offers. The shareholders' legal motion argues that if no delay is possible, the court should reject the process entirely.
Sagard, which owns 17 per cent of PSG, has made a $575-million (U.S.) offer for PSG in conjunction with investment firm Fairfax Financial Holdings Ltd., which is not a PSG shareholder. Sagard, a U.S. investment firm controlled by Canada's Desmarais family, has also teamed with Fairfax to offer PSG an emergency debtor-in-possession (DIP) loan to allow it to continue operating.
Samuel Robinson, president of Sagard, said the company's goal is to work closely with PSG's management to increase the value of its iconic sporting goods brands, such as Bauer and Easton.
"The Sagard/Fairfax bid is valued and structured to be thoughtful and fair to all stakeholders, and includes provisions and bid protections which are customary for this type of transaction," Mr. Robinson said in a statement.
The offer was unveiled at the end of October as the Exeter, N.H.-based sports-equipment manufacturer filed for bankruptcy protection in Canada and the United States, and is serving as a so-called stalking horse bid that must be beaten by any other potential buyer.
However, the shareholder group says the Sagard offer threatens to "freeze out" shareholders, while reserving much of the company's value for the Sagard group. In court filings, lawyers for the ad hoc committee said the short time frame and the structure of the Sagard deal could deter others from coming forward to try to make a better offer that could create more value for PSG's shareholders.
"The proposed sale process – led by Sagard's stalking horse bid – has all the outward appearances of an 'inside job,'" the group said in a legal filing. "Potential bidders do not tend to expend the time and money to engage in M&A processes where a board [favourite] has the 'inside track' to winning."
The ad hoc committee of shareholders is asking that an upcoming hearing to approve the bidding procedures and DIP financing, which is scheduled to be heard Nov. 30, be delayed "for at least a short period of time" to allow the committee to investigate and prepare its case.
The court filing does not disclose which shareholders of PSG are members of the ad hoc committee, but the company has several large institutional shareholders that are not involved in the offer to purchase PSG's assets. Investors face losing much of their investment in PSG under the terms of Sagard's bid, which will leave little for common shareholders after debt holders are paid.
The shareholder group said features "designed to chill competitive bidding" include a minimum bid requirement of $582.5-million, which must be paid all in cash, a required "good faith deposit" of 5 per cent of the purchase price in cash, and excessive "bid protections" including a $20.1-million break fee owed to Sagard and a requirement for the company to reimburse $3.5-million of Sagard's expenses if it is not the winning bidder.
The group said the practical effect would be to require any potential bidder to arrange more than $600-million in cash over the Christmas holiday season just to match the Sagard group's bid. The shareholders also complained that PSG did not solicit any competing stalking horse offers or commission a fairness opinion of the Sagard Group's bid.
When it filed for bankruptcy protection, PSG said that it was facing a "severe liquidity crisis." But the group of shareholders says PSG shows "little need for 'fresh capital'" and that there's no financial reason why the bidding process has to occur so quickly. "There is, in fact, no liquidity crisis," their filing said. "There is only 'deal' crisis [self-created by the deal participants]."
They are seeking to have their objection heard on Nov. 21.