Provide Commerce adds Red Envelope to stable

Embattled gifts cataloger Red Envelope found a buyer, as we reported last month. But it’s not Creative Catalogs Corp.

After a U.S. Bankruptcy Court-supervised auction under Chapter 11 Section 363 of the U.S. Bankruptcy Code on May 27, Provide Commerce agreed to acquire the assets of Red Envelope. Terms of the deal were not disclosed, but Provide Commerce was scheduled to assume ownership of Red Envelope on June 23.

Red Envelope filed for Chapter 11 bankruptcy protection on April 17. Creative Catalogs Corp. in April agreed to purchase Red Envelope’s assets and assume some of the company’s liabilities for $5.7 million. Red Envelope had until May 30 to solicit other bids, and evidently got a better offer from Provide Commerce, the parent company of ProFlowers, Secret Spoon, Cherry Moon Farms, and Shari’s Berries.

(This is the second cataloger to get away from Creative Catalogs Corp.; it had also been the stalking horse bidder in the recent sale of Lillian Vernon, but it lost out to Current USA.)

The auction “maximized the return for our existing creditors,” said Red Envelope’s chief financial officer Phil Neri in a statement. According to its filing, Red Envelope owes $8.76 million to creditors, including $708,356.33 to gift box manufacturer Design Packaging; $224,338.62 to catalog printer Arandell Corp.; $563,844.29 to Google, and $1.56 million to United Parcel Service.

Of Red Envelope’s creditors, Provide Commerce CEO Bill Strauss said in a statement: “Although there can be no guarantee that we will be successful in repaying all of the outstanding claims of our creditors, we believe that based on the expected outcome of the transaction there is a strong possibility that our unsecured creditors will receive substantially all of the amounts owed to them. We expect to begin distributions in the next few months and hope to complete those distributions by the end of 2008.”

At press time, Provide Commerce had not yet assumed ownership of Red Envelope, so officials were reluctant to comment. But spokesperson Karen Behrman notes that Red Envelope has “a great brand, great people, and we think adding them to our portfolio will enhance all of our brands moving forward.”

A brand extension

Stuart Rose, managing director with Wellesley, MA-based investment firm Tully & Holland, is a bit surprised by the winner of the auction. Provide Commerce brands sell flowers, candy, and other perishables.

While ProFlowers may see Red Envelope as an extension into gifts, Rose notes that merchandising gifts and managing the hard-goods supply chains are different from dealing in perishables. “There is a lot of upside for ProFlowers, but a lot of risk as well.”

Liberty Media, the parent company of the QVC home shopping network, acquired Provide Commerce in 2005. “Liberty Media has proven it likes to acquire e-commerce companies, with Provide Commerce and Backcountry.com in its portfolio,” says Lee Helman, managing director of New York-based investment firm Financo.

“Red Envelope is a nice fit strategically with ProFlowers to augment its gifting business and diversify its product offerings,” Helman says. “I imagine they will leverage existing fulfillment infrastructure to enhance the bottom line.”

Helman also says he wouldn’t be surprised to see less reliance on the catalog “and more focus on pure e-commerce going forward.”