Industry Credit Woes Kill Fingerhut Deal

It would be an exaggeration to blame Spiegel for Federated Department Stores’ failure to sell its Fingerhut Cos. unit. But the woes of Spiegel’s First Consumers National Bank (FCNB) and other credit-based businesses contributed to the inability of Business Development Group Acquisition (BDGA) to finalize its bid to acquire general merchandise cataloger Fingerhut and its subsidiaries. The core Fingerhut title targeted “subprime” consumers — those who relied on house credit because they were unable to qualify for major credit cards.

BDGA had signed a nonbinding letter of intent to acquire Fingerhut in February. On May 6, it announced that the deal would not be completed.

At press time, Federated was planning to wind down the Fingerhut general merchandise title, with mid-June the likely cut-off for orders. At the same time, “we’re looking to sell Fingerhut assets, including inventory, facilities, and 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.

On May 10, Federated reportedly mailed a letter to more than 40 liquidation companies and asset resellers calling for bids on Fingerhut’s assets. According to published reports, the letter was a surprise to former Fingerhut executive Ted Deikel and Tom Petters, CEO of Eden Prairie, MN-based wholesaler RedtagBiz. Earlier this year the pair had expressed interest in together acquiring parts of the business should BDGA pull out of the deal. And on May 6, RedtagBiz spokesperson Mary Pernula said that the two were still “very interested, but they are just starting talks with Federated.”

Pernula added 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 said, some key Fingerhut managers have left.

Close — but not close enough

Wayzata, MN-based BDGA was so close to finalizing the Fingerhut deal, says partner Marshall Masko, that the company had started 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, Fingerhut’s former financing arm.

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.

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. “Because [BDGA] was the only one looking to buy the whole Fingerhut company as a going concern, it’s unlikely that Fingerhut will get back in business,” he says.

That could be a significant blow to the industry. And the blow would be magnified should Federated also be unable to sell food gifts cataloger Figi’s, general merchandise title Popular Club, and the apparel catalogs (which include Lew Magram and Bedford Fair) that fall under the Arizona Mail Order group.

“It’s important in the catalog industry that those properties survive,” says Larry West, president of West Cos., a New York-based catalog mergers and acquisitions firm. “I see many outside lists results from catalogers, and [the Fingerhut] lists are often very important. To have them disappear with 12-month file counts already down” due to the recession would make it more difficult for mailers to prospect their way out of the recession.

And as far as West is concerned, Fingerhut’s demise is an unnecessary one. “If Federated had retained someone in mail order who knew what he was doing to handle the sale,” he contends, “the whole company could have been sold off by now.”

For the latest updates on Fingerhut — and for all the most up-to-date industry news — visit the Catalog Age Website at www.CatalogAgemag.com

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