Brookstone Wins Court Approval of Sale to Chinese Buyers

Brookstone Inc., the luxury-gadget retailer, won bankruptcy court approval of its plan to sell the chain to a group of Chinese buyers for about $174 million that will be used to pay creditors.

U.S. Bankruptcy Judge Brendan Linehan Shannon today in Wilmington, Delaware, approved the sale to a company backed by the Chinese conglomerate Sanpower Group and the Hong Kong-based private-equity firm Sailing Capital. The sale is the cornerstone of the retailer’s bankruptcy exit plan, also approved today.

“Today marks a new chapter in Brookstone’s history,” Chief Executive Officer Jim Speltz said in an e-mailed statement. “We have restructured our balance sheet, improved our capital structure and found a strategic partner who shares our vision and is committed to our growth.”

The Chinese group outbid a unit of novelty-retailer Spencer Spirit Holdings Inc. at an auction this month, according to court documents. Spencer will get about $4.2 million in breakup fees and expense repayment. The buyers will continue operating almost all the 242 stores, closing two at most.

The Chinese group, lead by Sailing, an investment fund of state-backed Shanghai International Group Co. Ltd., plans to revitalize Brookstone’s U.S. operations and seek international expansion.

Innovation Icon

“Brookstone, as an icon of American innovation, is well-positioned to explore opportunities beyond the U.S.,” including “penetrating markets in China and the U.K.,” said James Liu, chief executive officer of Sailing Capital Advisors (Hong Kong) Ltd., in the statement. Sailing is dedicated to U.S. operations and wants to “reinvigorate the brand, making it the go-to place for unique and innovative products,” Liu said.

Following the Sailing deal, Brookstone will have about $55.9 million in total liabilities, which is “$240 million less” than the current balance sheet, said Charles A. Dale, a lawyer for Brookstone. The retailer’s earnings before interest, taxes, depreciation and amortization are projected at $30.5 million in 2015.

The Chinese group will pay $135.7 million in cash and $10 million in notes and assume about $28 million of Brookstone’s liabilities, according to court papers.

Unsecured Creditors

Under the plan, unsecured creditors will share about $2.75 million from the sale proceeds after striking a deal to support the proposal. Bondholders, owed about $137.3 million, are getting less than 40 cents on the dollar, according to bondholder attorney Erez E. Gilad.

Brookstone, based in Merrimack, New Hampshire, filed for bankruptcy April 3 with a deal to sell its assets to Spencer for about $146.3 million. Brookstone struggled to adapt to a retail landscape where online competitors such as Inc. made its once hard-to-find products ubiquitous and consumers cut back on nonessentials.

The company saw sales fall 7.4 percent to $481.3 million for fiscal 2013 from the prior year, according to court papers. Adjusted Ebitda plummeted about 42 percent to $10.7 million.

Brookstone started in 1965 as a catalog business offering “hard-to-find tools” before opening its first store in 1973 in Peterborough, New Hampshire, according to its website. Most of its locations in the U.S. and Puerto Rico are in malls.

The company went private nine years ago in a $422 million deal backed by Temasek Holdings Pte, Singapore’s state-owned investment company, along with OSIM International Ltd. and JW Childs Associates LP. Singapore-based OSIM, Asia’s biggest maker of massage chairs, sells its products through Brookstone stores.

The case is In re Brookstone Holdings Corp., 14-bk-10752, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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