Cenveo Seeks Court Help in $140 Million Bid for Bankrupt National Envelope

Cenveo Corp., a specialty printing and envelope maker, is trying to buy competitor National Envelope Corp. out of bankruptcy for $140 million, according to court papers filed today.

Cenveo asked U.S. Bankruptcy Judge Peter Walsh in Wilmington, Delaware, to force NEC to release a copy of an alleged agreement with private equity investors that prevents NEC officials from seeking competing offers. NEC said in court documents that it signed a letter of intent on June 4 to sell itself to the private equity firm Gores Group LLC.

Cenveo sought Walsh’s help in “opening up the sale process and stalking horse bidding to other potential investors to maximize recoveries for creditors.”

NEC, based in Uniondale, New York, listed assets and debt of as much as $500 million each when it filed for bankruptcy June 10 along with 26 affiliates.

Josef S. Athanas, NEC’s attorney, didn’t immediately return a call seeking comment today.

Under terms of a loan to fund NEC’s operations during bankruptcy, the company has until July 16 to win court approval for an auction. The company has proposed holding an auction on Aug. 23.

A group of lenders, including LBC Credit Partners LP, LBC Credit Partners Parallel LP, Island Funding LLC and Wayzata Recovery Fund LLC, objected to that loan this month, claiming it “compels a rushed sale.”

‘No-Shop’ Agreement

NEC signed a “no-shop” agreement with Gores that prohibits discussions with other potential buyers, said Kenneth A. Lefkowitz, Cenveo’s attorney.

Before NEC filed bankruptcy, Cenveo tried unsuccessfully to buy the company for $140 million, Cenveo said in court papers. After the bankruptcy filing, Cenveo contacted NEC, which refused to release basic financial information needed to make a final offer, Lefkowitz said in an interview. That will put Cenveo at a disadvantage in the proposed auction, he said.

“It is a hidden process,” Lefkowitz said, referring to the potential sale.

Frank Stefanik, a Gores spokesman, declined to comment.

“I was surprised Cenveo was rebuffed by NEC before the bankruptcy filing” because the sale “could have saved it” from bankruptcy, said Charles Strauzer, senior managing director at CJS Securities Inc., in a phone interview today. Cenveo’s offer “makes a lot of strategic sense,” and considering NEC is a distressed company the offer is fair, Strauzer said.

Parent’s Losses

Cenveo’s parent, publically traded Cenveo Inc., lost $329 million in 2008-2009 on sales of $3.8 billion, according to Bloomberg data.

Strauzer rates Cenveo “market outperform” and has a target price of $14 over the next 18 months. Cenveo fell 7 cents, or 1.3 percent, to $5.48 in New York Stock Exchange composite trading at 4:15 p.m.

NEC and Cenveo have manufacturing operations in 10 common cities, “which in our opinion makes this transaction quite compelling,” Strauzer wrote in a note. He said NEC had an operating margin of 4 percent last year while Cenveo’s margin was more than double that.

“We see no reason why a combination wouldn’t yield margins closer to 15 percent over time,” Strauzer wrote.

A combination of NEC and Cenveo could yield $60 million in earnings before interest, taxes, depreciation and amortization, after synergies for the first twelve months.

Cenveo and NEC together have about 40 percent of the $3.7 billion North American envelope market, according to court records that NEC filed at the beginning of its bankruptcy.

Recession, E-Mail

NEC said it filed bankruptcy after the recession and the increased use of e-mail cut sales, leading to more than three years of losses.

NEC is owned by the family of William Ungar, a Holocaust survivor from Poland who founded the company in 1952, court papers show. The company expanded in 1991 with the acquisition of Aristocrat Envelope and later bought rivals including Williamhouse and Atlantic Envelope.

The company said in court documents it has 14 factories in the U.S. and 3,390 employees.

The lead case is In re NEC Holdings Corp., 10-11890, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

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