The Philadelphia Inquirer

Boscov's bidding war could include family

Fri, Sep. 19, 2008

By Maria Panaritis
Inquirer Staff Writer

The bidding war for the country's oldest family-owned department store has begun. Or, shall we say, the first salvo has been fired.

And indications yesterday were that the family that founded the 97-year-old Boscov's department store chain in Reading - only to lose it to Bankruptcy Court last month - may be readying to join the fray with its own bid to buy back the beloved company.

Creditors were cautiously optimistic about the news Wednesday that Boscov's Department Store L.L.C. had asked the court to name Versa Capital Management Inc., of Philadelphia, the lead bidder with an $11 million cash offer in an overall deal valued at more than $225 million.

Versa's bid includes assuming about $184 million in Boscov's debt and payment of a number of fees. But the Philadelphia equity firm's $11 million in cash would give vendors only about 12.2 cents on the dollar for the $90 million they were owed when Boscov's declared bankruptcy Aug. 4.

That is partly the reason at least one creditor was intrigued by the buzz that Boscov family members were preparing their own offer to buy back the 49-store chain, which is being shrunk through going-out-of-business sales to 39 stores by mid-October, as part of a hoped-for reorganization plan.

 "We've heard that the family's very interested in maintaining control," said Warren C. Gerber Jr., financial-services manager for New York-based Phillips-Van Heusen Corp., which was owed $1.3 million when Boscov's declared bankruptcy.

Gerber and others representing Boscov's largest creditors said there was hope that Versa's lead bid would provoke more generous offers between now and the Oct. 10 bid deadline. Boscov's has asked to schedule the auction for Oct. 13.

The auction process was initiated Wednesday when Boscov's asked the court to name Versa its lead bidder, or "stalking horse," to get things going - a standard procedure in bankruptcy cases. Negotiations with Versa had been ongoing for at least six weeks.

Like other creditors balancing the desire to get paid against the alternative - the fear that Boscov's would disappear through liquidation - Gerber said his company supported the family's efforts to keep the chain running.

Gerber, whose company sells Arrow, Geoffrey Beene and Calvin Klein apparel, said it was too soon to know how Boscov and Lakin family members might structure a deal. He said that anything could happen between now and mid-October.

"You don't know what sort of alliances might take place behind the scenes," Gerber said.

Versa managing partner Greg Segall said in a statement that Boscov's could be profitable. "We look forward to working with management to create a stronger, more competitive company," he said.

And while creditors were not ecstatic over Versa's offer, they were hopeful it could entice others to bid on the chain, whose remaining 39 stores generate $1 billion in annual sales.

 "It gives us a baseline," Gerber said of Versa's bid. "And now going forward, obviously, somebody has to do better than that."

 Boscov's chief executive officer, Ken Lakin, whose father, Ed Lakin, and uncle, Al Boscov, ran the company until retiring with lucrative buyouts in January 2006, declined to comment about his family's plans, if any.

He referred to accounts of his family's preparing a potential bid as "speculation."

Lakin said he believed that Versa's offer, however, was a positive development in bankruptcy proceedings that the family entered into with great reluctance.

 "It's a good thing for Boscov's anytime you have an investor who thinks your company has worth and value - and value down the road," Lakin said.

Since filing for bankruptcy, Lakin has said the family hoped to emerge from the proceedings healthier and able to continue to operate, rather than being sold in pieces to satisfy debts.

This view is shared, to some degree, by creditors, who are balancing the value of getting paid more up front by a liquidator against the long-term loss of a big client, should Boscov's be dissolved, said Anthony J. Pacchia, senior managing director and unit holder of Traxi L.L.C., a New York financial-advisory firm.

Pacchia is working with the seven-member bankruptcy committee representing unsecured creditors - a list that includes Inquirer owner Philadelphia Newspapers L.L.C.

Pacchia said creditors were hoping the auction would draw higher bids than Versa's $11 million cash.

 "Anything north of that would be more acceptable," Pacchia said, adding that "other parties have expressed interest."