Hanover to Sell Noncore Titles

Edgewater, NJ-based multititle cataloger Hanover Direct on Nov. 10 officially put all its noncore assets — plus-size women’s apparel catalog Silhouettes, upscale home furnishings cataloger/retailer Gump’s, and men’s apparel book International Male — on the selling block. The $457.6 million marketer’s remaining catalogs will be bedding and home decor titles: Domestications, The Company Store, Company Kids, and Scandia Down.

At the same time it revealed its decision to sell the titles, Hanover announced its third-quarter results, and they’re not pretty. The company lost $16.6 million, nearly double the $8.4 million loss it reported for the third quarter of 2002. Third-quarter net revenue declined 9%, to $96.6 million from $106.0 million the previous year.

Hanover Direct would not comment for this story, nor has it given details regarding potential buyers or a time frame for the divestitures.

The pending sale of the noncore catalogs is part of a strategy to pay down more of Hanover’s debt under its recapitalization. The recapitalization began on May 19, when one of Hanover’s major investors, Luxembourg-based Richemont Finance, sold all of its securities in Hanover — 29.4 million shares of common stock and 1.6 million shares of Series B preferred stock — to Chelsey Direct, a subsidiary of hedge fund Chelsey Capital, for about $40 million.

Hanover, which was not aware of the transaction until it was announced by Richemont, sued Richemont and Chelsey on the grounds that they had traded securities while in possession of inside information. The lawsuit was dismissed by the court.

Chelsey Direct proceeded to convert its 1.6 million Series B preferred stock into 564,819 Series C preferred stock and 89.9 million shares of common stock. This recapitalization reduced Hanover’s outstanding debt by more than half, to $56 million from $113 million. But it also gave Chelsey Direct control of the company. Already Chelsey Direct has added five designees to Hanover’s nine-member board of directors.

Misjudging the market?

Some industry watchers believe that Hanover, which five years ago operated more than a dozen catalogs, has waited too long to get serious about selling the noncore titles. Several sources say that some of the catalogs have been in play for years, so Hanover may not be able to get full value for the businesses from inquiring suitors.

One source in the investment banking community, who spoke on the condition of anonymity, says that Hanover earlier this year may have declined a $35 million bid for Silhouettes. “They should have taken it,” says the source, who speculated that Hanover would be fortunate to get $20 million for Silhouettes in today’s mergers and acquisitions market.

Another investment banking source who also requested anonymity feels that the central problem with Hanover is that the organization’s corporate structure is top heavy, with too many higher-level executives.

“Hanover has been unwilling to decentralize its operations from a systems and infrastructure point of view,” the source adds. “The company’s been headed down this path for years.”

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