HHGregg on Thursday said it has terminated its previously announced nonbinding term sheet with an anonymous party to purchase all of its assets through a reorganization under Chapter 11 of the United States Bankruptcy Code, for which it filed March 6.
The companies were unable to reach a definitive agreement on terms, according to a press release. The struggling electronics retailer has obtained interim approval of its $80 million debtor-in-possession loan facility to fund operations of the business during the sale process.
The mystery bidder appears to be the retailer’s ad agency, Zimmerman Advertising, an unsecured creditor owed more than $6 million, according to Indianapolis Business Journal citing attorney statements in court and court filings. Another vendor, Haier US Appliance Solutions, objected to dedicating $6 million of the $8 million being set aside to pay vendors, according to that report. The deal could yet be revived, as it continues to be negotiated, according to The Wall Street Journal.
When the deal with its unnamed suitor was announced, CEO Robert J. Riesbeck said that the retailer was poised “to come out of this debt-free and more agile.” But with the plans dashed, HHGregg must move forward in its Chapter 11 process without a stalking horse bid to set the stage for any bankruptcy auction. The company said it will continue to operate in the ordinary course of business throughout the restructuring process, though that takes into account the closure of 88 stores (representing some 40% of its fleet).
In a statement Thursday, Riesbeck said interest in the company’s assets remains, but it’s not clear that it’s the kind of interest that, as he characterized the previous deal, would allow HHGregg to execute a turnaround without piling up a lot of debt. “We have received strong interest from third parties interested in buying some or all of the Company’s assets,” he said. “We and our advisors continue to work with potential acquirors to help them understand our business model for future growth and our value proposition.”
Home electronics has been a tough space for many players, not only because a few high-priced categories like smartphones have now become saturated, but also because many have also evolved into commodities — items that can be found at a range of retailers — forcing those merchants to compete on price. Even Best Buy, which enjoys fruitful store-within-store concessions relationships with several retail partners and a successful omnichannel approach, is struggling as Amazon takes significant market share.
Online retailers, mass merchants and warehouse clubs have also reshaped the economics behind the consumer electronics retail category, making a turnaround for HHGregg more challenging, Morningstar, Inc. equity analyst RJ Hottovy said in a note emailed to Retail Dive.
Indeed, HHGregg's troubles are particularly pronounced in the space. The company has closed stores and laid off some 1,500 employees in a cost-cutting measure days ahead of this Chapter 11 filing, and in its most recent quarter, sales plummeted to about $453 million, down 24% compared to the year-ago quarter. In all, HHGregg's stock value has declined more than 60% over the last year, and earlier this month, the New York Stock Exchange warned the company could be delisted for failing to meet the minimum listing price requirement.