Red Envelope Files Chapter 11, Finds a Buyer Apr 21, 2008 3:36 PM
, By Jim Tierney and Tim Parry
JobZone
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Less than two weeks after MULTICHANNEL MERCHANT reported
that Red Envelope was in talks with two potential buyers, the San
Francisco-based gifts cataloger has filed for Chapter 11 bankruptcy protection.
Red Envelope filed a voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code with the U.S. Bankruptcy Court for the Northern District of
California on April 17. The court assumed jurisdiction over the assets of the
company as of the date of the filing of the bankruptcy petition.
According to the filing, Red Envelope owes $8.76 million to creditors. That
includes $708,356.33 to gift box manufacturer Design Packaging of Scottsdale,
AZ; $224,338.62 to catalog printer Arandell Corp.; $563,844.29 to Google; and
$1.56 million to United Parcel Service.
The company remains in possession of its assets, and continues to manage and
operate its business and properties, as debtor-in-possession, subject to the
provisions of the Bankruptcy Code and the supervision and orders of the
Bankruptcy Court.
Creative Catalogs Corp. has agreed to purchase Red Envelope’s assets and assume
some of the company’s liabilities for $5.7 million. Red Envelope has also
received a $4.5 million debtor-in-possession credit facility and loan from
Creative Catalogs and Granite Creek FlexCap so that the business does not have
to shut down during the transition process.
The sale of Red Envelope must be completed by May 30, according to the filing,
during which time the company can solicit other bids.
“We intend to use this filing to take the actions necessary to position Red
Envelope for future success,” Phil Neri, Red Envelope’s chief financial
officer, said in a release. “We want to assure our customers, our employees,
our vendors, and our partners that Red Envelope is operating business as usual
during this transition.”
The company, which was founded in 1997 as 911 Gifts and changed its name to Red
Envelope in 1999, has had its share of ups and downs. After a March 31
regulatory filing -- in which it revealed that former CEO John Pound resigned
abruptly on March 30, and Wells Fargo Retail Finance had withdrawn its credit
line -- company officials announced they had inadequate funds to continue
operations.
According to New York-based media brokerage services firm ParadyszMatera, Red
Envelope had a universe of just under 882,000 names in the fourth quarter, and
an average sale of $92.
Creative Catalogs Corp. was the stalking horse bidder in the recent sale of
Lillian Vernon, but lost out to Current USA. Lillian Vernon officials were
granted permission to hold an auction to gauge buying interest in the company,
and Current USA came through with a better offer. Creative Catalogs Corp.
reported nearly $43 million in sales for 2007, according to Hoover’s business
directory.
Stuart Rose, managing director with Wellesley, MA-based investment firm Tully
& Holland, says Creative Catalogs “has certainly been busy,” and sees
similarities with Red Envelope. “I assume there are fulfillment and list
synergies between the two companies,” he says.
“There is a break-up fee here, so if Creative loses, they still make a small
sum,” Rose notes. “If they are successful, it would catapult Creative Catalogs’
volume. The owner there is very astute and would likely make Red Envelope
a success.”
