Federated Mulls Its Fingerhut Options

Five weeks after Federated Department Stores accepted a nonbinding letter of intent from Business Development Group Acquisitions (BDGA) to buy its entire Fingerhut Cos. catalog business, the deal had not been finalized. So despite pickets and protests, on April 5 Federated laid off 3,300 of its 6,000 Fingerhut employees.

Wayzata, MN-based BDGA, led by turnaround specialist Peter Lytle, had agreed to buy the entire Fingerhut operation on Feb. 21. But at press time BDGA had yet to pull together the financing. An antsy Federated, meanwhile, decided it could no longer support the general merchandise cataloger. “We don’t intend to continue operating Fingerhut,” Federated spokesperson Carol Sanger told Catalog Age in late March. “It’s costing us millions of dollars every week in losses, and that’s not something we can continue.”

In a statement released March 28, Federated used more formal terminology: “While progress has been made and both Federated and BDGA intend to continue discussions and negotiations, sufficient uncertainty exists as to whether a transaction will be concluded.”

Federated also said it would begin to work with other companies interested in purchasing individual Fingerhut assets, such as women’s apparel mailer Arizona Mail Order and food gifts catalog Figi’s. According to Sanger, BDGA was the only potential buyer interested in buying Fingerhut along with all of its subsidiaries. Federated plans to continue running the subsidiaries until they are sold.

“Federated is not closing the door on BDGA,” Fingerhut spokesperson Ben Saukko said in early April. “But we can’t keep other third parties that are interested in individual Fingerhut assets on hold indefinitely, especially when there’s a good chance some of them may want to rehire Fingerhut employees for their own operations. So we’re moving forward with the shutdown of the business.”

As to the remaining 2,700 Fingerhut employees, Fingerhut’s Saukko says “who stays depends on our business needs as we move forward with the winding-down of the business.”

An unrealistic time frame?

In a statement of its own, BDGA said it hoped to provide Federated with sufficient financial numbers to complete the deal. The firm noted that it has received letters of intent for an underwritten bank financing but that the bank group required additional due diligence on the value of the assets and other issues. BDGA has completed its own due diligence.

Noel Beasley, international vice president of the Chicago-based Union of Needletrades Industrial and Textile Employees (UNITE) in a statement said Federated imposed an unrealistic deadline on BDGA to get financing to close the sale. BDGA’s statement about the bank’s need for further due diligence underscored what some observers — including UNITE — contend was an unreasonably tight deadline. In effect, Federated gave BDGA less than two months to pull together a fairly complex deal.

UNITE, which represents more than 1,000 Fingerhut workers in Minnesota and Tennessee, held a rally on April 5 in front of Federated’s Cincinnati headquarters. The union also called on state and federal officials to investigate the company if it fails to sell Fingerhut.

If the BDGA deal falls through, several potential buyers reportedly remain interested in parts of the Fingerhut business. Among them are former Fingerhut chairman Ted Deikel, who along with businessman Tom Petters made a backup offer in February. Their offer to buy an unspecified portion of the Fingerhut business was still on the table as of late March, according to Associated Press.

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