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Latest Update: Bon-Ton's Bid to Avoid Liquidation Dealt Setback as Judge Denies Fee Payment Contingency

Court Ruling Could Upend Bon-Ton Landlords' $128 Million Offer to Buy Struggling Retailer Out of Bankruptcy
April 11, 2018
Credit: The Bon-Ton Stores, Inc.

The U.S. Bankruptcy Court may have just derailed a last-minute proposal submitted over the past weekend to acquire The Bon-Ton Stores Inc. (OTCQX: BONT) out of bankruptcy for $128 million cash and keep the retailer operating as a going concern.

An investor group composed of Washington Prime Group and Namdar Realty Group, which own shopping centers where the discount department store chain has stores, together with DW Partners and Namdar partner Mason Asset Management, offered to buy The Bon-Ton Stores Inc. (OTCQX: BONT) out of bankruptcy for $128 million cash in a bid to keep the retailer as a going concern.

The investor group had conditioned its willingness to proceed with negotiations on a deposit of $500,000 to cover the cost of due diligence.

Bankruptcy Judge Mary Walrath in the case today declined to allow the payment of the fee. In the ruling, the judge cited legal precedence against such moves. In addition, Walrath said she was concerned that the "integrity of process is being offended" because the landlord-led investor group is only a potential bidder due to the contingency in its letter of intent, and not an actual bidder as the other groups of bondholders that have submitted bids.

The struggling, Milwaukee-based department store chain filed for Chapter 11 bankruptcy reorganization this past February. The investor group, which includes two of Bon-Ton's current property owners, proposes to acquire Bon-Ton through a bankruptcy court-supervised sale process.

In this afternoon's hearing, it was disclosed that the three other groups that ahve submitted bids all call for the liquidation of the firm.

The next move in the case will come Monday April 16, when the court will hold the official auction for company.

In its letter of intent, the landlord-backed investor group proposed to acquire all of Bon Ton's assets with one exception -- a 743,600-square-foot distribution center at 115 Enterprise Pkwy in West Jefferson, OH (Columbus). That property would be sold separately to AM Retail Group Inc., which operates retail store locations owned by G-III, including Wilsons Leather, G.H. Bass & Co., Calvin Klein Performance, Karl Lagerfeld Paris and DKNY stores.

Bon-Ton is a tenant in 15 of Washington Prime Group's properties, totaling 1.48 million square feet. DW Partners is an alternative asset manager and Namdar Realty Group is a privately held commercial real estate investment and management firm that owns and operates more than 30 million square feet of commercial real estate in the U.S. Bon-Ton is a tenant in 13 of its properties.

Neither Washington Prime nor Namdar have commented yet on the deal.

Bon-Ton operates 250 stores, which includes nine furniture galleries, in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's and Younkers brands.

This would not be the first time landlords have teamed to buy up a troubled but major tenant in their property portfolios.

In September 2016, Simon Property Group (NYSE:GGP), GGP (NYSE:GGP) and Authentic Brands Group LLC acquired Aeropostale Inc. through a bankruptcy court supervised sale for $80 million. And so far, that move seems to be working out for the REITS.

GGP chipped in $20.4 million of cash for its portion. At the end of last year, GGP sold a 54% share of its interest in the joint venture to Authentic Brands Group LLC for $16.6 million, which resulted in a $12 million gain to GGP.

Namdar's and Washington Prime's bid makes sense for a couple of reasons, according to Morgan Stanley Research analysts Richard Hill and Ronald Kamdem.

If they were to lose Bon-Ton as a tenant, cap rates for their malls would likely widen if given the risk of co-tenancy and capex requirements to redevelop.

It could also be somewhat of an offensive move. It is possible that the landlords could place Bon-Ton stores in malls where they have a big box vacancy.

"We can't help but think this would be a competitive advantage for these two mall landlords relative to their peers," the two analysts said. "First, they could choose to keep open stores at their properties while closing others at competing locations. Second, it could provide them an opportunity to buy malls from their competitors at more attractive valuations if there is a risk of losing a major tenant."

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