The largest shareholder of Bauer hockey gear maker Performance Sports Group Ltd. has reached a settlement deal with the company's creditors and other shareholders, agreeing to modify terms of its $575-million (U.S.) bid to buy all of the company's assets.
Sagard Capital Partners LP and partner Fairfax Financial Holdings Ltd. have agreed to extend the deadline for other bidders to make an offer for PSG and have reduced the breakup fee they would be paid if they do not win control of the company, according to details of the deal outlined at a court hearing Wednesday.
The deal resolves complaints that the terms of the Sagard group's "stalking horse" bid for PSG gave it an unfair advantage in the auction for the company's assets and made it difficult for other bidders to come forward. Sagard, controlled by Canada's Desmarais family, owns 17 per cent of PSG.
PSG, which controls the Bauer and Easton sports equipment brands, filed for bankruptcy protection in Canada and the United States at the end of October, saying it was facing a "severe liquidity crisis."
The company filed a document in court Tuesday urging judges in both countries to approve the bidding process, saying the objections could have jeopardized the Sagard bid, which is so far the only offer tabled for PSG's assets.
PSG also revealed it has signed non-disclosure deals with almost 30 potentially interested bidders who now have access to the company's data room. Five more are in the process of negotiating non-disclosure agreements to view the data, the company said.
Dozens of lawyers appeared at a joint court hearing early Wednesday in Toronto and Wilmington, Del., which was linked by video conference, to try to resolve the host of objections filed by a committee of unsecured creditors, a committee of shareholders and the U.S. trustee overseeing PSG's Chapter 11 bankruptcy protection filing.
The company's lawyers began the hearing by outlining a deal in principle they had reached with the unsecured creditor group, promising to make changes to its bidding procedures. During a break later in Wednesday's hearing, the company also resolved its outstanding issues with shareholders. A lawyer for the U.S. trustee then told the court he would not pursue his objection, clearing the path for an auction of PSG's assets.
The creditors and shareholders objected to a requirement that any competing bid must start at $582.5-million, or $7.5-million higher than Sagard's bid. The group also objected to a requirement that subsequent bids must increase by increments of $2.5-million.
The group also complained about the size of the $20.1-million break fee that would have been payable to the Sagard group if another bidder wins control of the company, which was worth 3.5 per cent of the bid price.
Under the terms of the settlement deal, however, Sagard agreed to reduce its breakup fee to 3 per cent, or $17.25-million.
The minimum bid requirement was reduced to $580-million, or $5-million more than the Sagard offer, and subsequent bids will increase by increments of $1-million. Bidders will be required to submit a "good faith" cash deposit worth 3 per cent of their bid price, down from 5 per cent originally.
The creditor and shareholder groups also objected to the tight time limits, with competing bids due by Jan. 4, saying it would be difficult for other bidders to review PSG's operations and arrange financing over the holiday season to meet the tight deadline.
Under the settlement deal, the deadline for opening bids will be extended by three weeks to Jan. 25.
Lawyer Michael Schaedle, who is representing a committee of unsecured creditors of PSG, said his group has changed its views about the unfairness of the deal with Sagard after learning more about how constrained the company's options were to arrange a bankruptcy plan before its October filing.
"As a result of all this work, we believe the process is fair," Mr. Schaedle said.
Following the hearing, Sagard Capital president Samuel Robinson said he was pleased with the outcome, "which is another step towards our goal of building PSG's iconic brands into an even stronger franchise for the long term."