Derby files for bankruptcy in order to be sold to the Finden-Crofts/Perseus MBO
In effect, Cycle Bid Co. – a new company set up to own what was once the Derby Cycle Corporation– becomes the ‘stalking horse’ to flush out any other bidders for the owner of Raleigh
However, the fact that Finden-Crofts was planning an MBO has long been known and the sports group said to be interested in all or parts of the Derby Cycle Corporation failed to see its interest through.
Cycle Bid Co. is therefore highly likely to be the eventual owner of Derby and its brands, such as Raleigh and Diamondback.
Filing for Chapter 11 bankruptcy is a protective measure and will not effect Raleigh in the UK.
The good news mixed with the bad was discussed at Derby’s quarterly management meeting held in New York yesterday. Derby MDs from around the world met in the offices of Paul, Weiss, Rifkind, Wharton & Garrison at 1285 Avenue of the Americas, New York to hear the fate of the corporation that sold Sturmey Archer for £30.00 and which later jettisoned the CEO who could sanction such a deal whilst losing millions of dollars in dotcom ventures such as bikeshop.com and dolling up the corporate HQ in Delaware.
Chapter 11 bankruptcy has been on the cards since last year and comes on top of a massive Q2 drop in revenue and operating income revealed in Derby’s recent filing to the US Securities and Exchange Commission.
Derby’s Q2 net revenue for the period ending July 1st 2001 was $126m, 25 down on the same quarter in 2000. Operating income was slashed even further. In 2000 it was $10.8m for Q2, this year it dropped $8.2m to $2.6m, a 75 percent drop.
In the SEC filing, Nottingham-based Simon Goddard, Derby’s vice-president and corporate controller, said:
“While gross margins were held at 25.7 percent of revenues, selling, general and administrative expenses could not be reduced as quickly as the decline in revenues and were 11 percent below year ago. $2.1 million of fees for financial advisory services and related professional advice were paid by the Company for the review of its business and exploration of alternatives in order to repay the Revolving Credit Facility in the quarter ended July 1, 2001.
“The decline in revenues allowed the Company to reduce its levels of inventories and accounts receivable, such that the cash flow improved compared with a year ago.”
Here’s the full Chapter 11 and proposed sale statement from Derby:
Kent, WA August 20, 2001: The Derby Cycle Corporation (“Derby”) today announced that it has reached an agreement to sell substantially all its worldwide operations to Cycle Bid Co. Cycle Bid Co is a corporation newly formed to facilitate a buyout by many of the existing members of management and shareholders of Derby and its subsidiaries. Simultaneously, Derby also announced that it had filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware, to effect the sale. Under the Bankruptcy Code other parties will have an opportunity to submit bids for the operations through a Court supervised competitive bidding process. During this time, Derby’s businesses will continue uninterrupted and will continue to provide their customers with the same quality of service and products they expect.
The Chapter 11 filing will not have any impact on the operations in Canada, Germany, South Africa, the United Kingdom, elsewhere in Europe or Asia. These operations are not in bankruptcy and continue to trade normally
Executive Chairman of Derby, Alan Finden-Crofts, who is also leading the buyout team said:
“The financial structure in place over the last three years has been onerous, and it has been clear for some time that Derby needs to be fully restructured through Chapter 11. It is the only way to close the door on these years and ensure a fresh start. Using the Chapter 11 process will allow other people to make a bid: the most important thing for employees, customers and suppliers is that the operations are soundly financed and well managed in the future.”
The terms of the sale agreement with Cycle Bid Co include an amount of $20 million to be paid at closing, which is scheduled to be in September 2001. Additionally, Derby’s note holders would participate in any increase in value of the business should it be sold in the future.
Mr John Schwieters, speaking on behalf of Perseus LLC one of Derby’s largest current equity holders, said:
“We are delighted to be part of the group that is bidding to take over Derby’s operations. Derby has had a difficult time since its recapitalisation in 1998 but we are convinced that, if our bid is successful, Alan and his management team will make Derby an investment to be proud of again.”
Alan Finden-Crofts added:
“Derby has no bank borrowings and actually has money in the bank. There will be no need for any additional financing during the process. All our suppliers have been paid normally, are being paid and will continue to be paid normally. We are seeking court approval to ensure that this continues to be so for our U.S. operation. We are very excited about the Company’s future and our customers can look forward to some great bicycle models to be launched at the trade shows in the next few months.”
Big thanks to Bike Biz, probably the finest source of cycling trade news in the world….