Embattled gifts cataloger Red Envelope has a new lease on its fiscal life. 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 substantially all of the assets of Red Envelope. Terms of the deal were not disclosed.
Other qualifying bidders had the opportunity to submit higher and better offers for the company’s assets through the court-supervised bidding process. In accordance with the details of the auction, Provide Commerce is set to assume ownership of Red Envelope on June 23.
Red Envelope filed for Chapter 11 bankruptcy protection on April 17. Officials for the cataloger last month entered into an agreement with Creative Catalogs Corp., whereby the latter would purchase the company’s assets and assume some of its liabilities for $5.7 million. Red Envelope also received a $4.5 million debtor-in-possession credit facility and loan from Creative Catalogs and Granite Creek FlexCap so that the business did not have to shut down during the transition process.
But Red Envelope officials sided with Provide Commerce, the parent company of ProFlowers, Secret Spoon, Cherry Moon Farms, and Shari’s Berries.
“We look forward to working with Provide Commerce and ensuring that the transition in the coming weeks is smooth for employees, customers, vendors, and partners,” Phil Neri, Red Envelope’s chief financial officer, said in a release. “In addition, we are thrilled that the auction maximized the return for our existing creditors.”
According to its Chapter 11 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.
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.”
Stuart Rose, managing director with Wellesley, MA-based investment firm Tully & Holland, says Red Envelope “certainly has a business to save. With nearly $100 million in sales, they needed to be profitable, but never were.”
Rose is somewhat surprised by the winner of the auction as ProFlowers brands are flowers, candy, and other perishables. While ProFlowers may see Red Envelope as an extension into gifts, he notes, “merchandising gifts and the supply chains are different. 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 at Red Envelope. I also wouldn’t be surprised to see less reliance on the catalog and more focus on pure e-commerce going forward.”