Credit issues blamed for death of Fingerhut deal

The woes of credit-based businesses such as Spiegel’s First Consumers National Bank (FCNB) subsidiary contributed to the death of a deal to buy multititle mailer Fingerhut Cos. On May 6, Business Development Group Acquisition (BDGA) and Fingerhut parent Federated Department Stores announced that BDGA would not be finalizing its bid to acquire the low-end general merchandise cataloger and its subsidiaries.

Federated now plans to wind down the Fingerhut title, with mid-June the likely cut-off for orders. At the same time, though, “we’re looking to sell Fingerhut assets, including inventory, facilities, receivables, as well as Fingerhut’s subsidiary catalogs, including Figi’s, Arizona Mail Order, and Popular Club Plan,” says Fingerhut spokesperson Ben Saukko. The subsidiary catalogs have continued to operate with their staffs intact..

Wayzata, MN-based BDGA was one of several parties looking to buy Fingerhut, but it was the only one interested in buying the entire catalog operation and keeping it in business. BDGA was so close to finalizing the Fingerhut deal, says partner Marshall Masko, that it had begun setting closing dates as it finalized the terms of the agreement.

But then credit rating agency Moody’s “told us that market conditions had changed” for the worse, Masko says, referring to the recent troubles of credit-based businesses, such as FCNB, which Spiegel is looking to sell or close down, and Metris, which Fingerhut had once operated.

According to Masko, Moody’s said that to maintain a favorable credit rating for Fingerhut, BDGA would have to significantly increase the collateral to cover Fingerhut’s $450 million debt. BDGA was unable to secure the additional financing needed.

Former Fingerhut executive Ted Deikel and Tom Petters, CEO of Eden Prairie, MN-based wholesaler RedtagBiz, had earlier this year expressed interest in working together to acquire parts of the business, should BDGA pull out of the deal. And Redtagbiz spokesperson Mary Pernula says that the two are still ” very interested, but they are just starting talks with Federated.

Permula adds that Deikel and Petters “recognize they need to move very quickly because the business has deteriorated rapidly.” Fingerhut has not mailed a catalog since January, which means its list of buyers is losing recency. In addition, Pernula says, some key Fingerhut people have left.

Federated spokesperson Carol Sanger has said that no buyer other than BDGA expressed interest in buying the entire Fingerhut operation, subsidiaries and all. But she says that a buyer might opt to buy the Fingerhut name and relaunch the company–albeit on a lower scale.

That may be wishful thinking, however. Fingerhut’s Saukko, for one, says that the catalog is just about as good as dead.