Foster & Gallagher Files for Chapter 11

Grand Rapids, MI—On July 2, multititle mailer Foster & Gallagher (F&G) made it official: It filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. The news followed the announcement on June 29 that F&G was laying off nearly all the workers at its horticultural catalogs.

According to an F&G statement, following discussions with its lenders, the company decided to close and liquidate its Spring Hill Group, Michigan Bulb Group, and Gurney’s Group and their 21 subsidiaries. The Gift Group, which includes the Walter Drake and The Home Marketplace catalogs, remains in operation and on the selling block. According to F&G spokesperson Doug Morris, the fact that the Gift Group is still in operation is one reason that F&G filed for Chapter 11 instead of Chapter 7; another is that a Chapter 11 filing allows an “orderly wind-down of the business,” Morris says. As part of the Chapter 11 proceeding, F&G has arranged for short-term financing from certain of its existing lenders to facilitate the closing and liquidation.

Over the past two years, F&G has tried to address its financial and operational woes, such as divesting noncore businesses and assets, consolidating operations, and reducing management and employee head count. F&G’s sales fell from a high of $476 million in 1997 to $337 million last year. Some of this was due to the April 2000 passage of the Deceptive Mail Prevention and Enforcement Act, aimed at the use of sweepstakes. The Michigan Bulb catalog had used sweepstakes significantly as a prospecting tool. According to the spring edition of an F&G employee newsletter, between 1999 and 2000, Michigan Bulb’s gross revenue tumbled 44%, from $116 million to $65 million.

F&G’s earnings tumbled as well. The F&G employee newsletter noted that the company’s last profitable year was 1998, when earnings were $1.6 million. F&G posted a $7.7 million operating loss in 2000, although that was an improvement on its reported $24.9 million operating loss in 1999.

“The news is very sad for both the many very long-term employees and vendors and for our industry,” says Mark Swedlund, partner at W.A. Dean & Associates and a former F&G senior vice president. “Throughout the ‘80s and most of the ‘90s, F&G was known as one of the most profitable, most stable, and most shrewdly operated catalog consolidators in the business. Though few know it, F&G was at the forefront in developing marketing techniques that are now in use throughout the industry. The company’s hard times are good for no one.”

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