20 June 2015

Family Christian Stores: Auction Hits a Speedbump

A couple of days ago I predicted that the bankruptcy court would approve the sale of the assets of Family Christian Stores (FCS) to an entity controlled by Richard Jackson, the previous owner of FCS and the purchaser of one of the largest claims against the business. I believed that the support of virtually all creditors for the Jackson bid, even though it seemed lower than a competing bid by a consortium of liquidators, would be adequate to get court approval.

I didn't know then what came out during the hearing to approve the sale: the current CEO of FCS, Chuck Bengochea, contacted Jackson during the five-day auction period to request that he raise his bid. Read about it here. There's nothing wrong with asked bidders for more money--that's the point of an auction. There is, however, something deeply wrong with asking only one bidder to up the ante, especially when that bidder has promised to keep you on the payroll after the sale.

So it's back to the auction block for FCS. The bankruptcy judge didn't disqualify Jackson's entity and he specifically stated that a sale for less than the maximum bid could be approved if there were sufficient contingencies that created some doubt about ultimate payment of the max. Thus, when all is said and done--for the second time--in my opinion it's still more likely than not that Jackson will walk away with FCS. One can only hope that this ongoing debacle will have taught whomever is left holding the bag how to run a business with a razor-thin margin.

(Go here, here, here, and here for a sampling of earlier posts on this Chapter 11 bankruptcy.)

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