The fate of the bankrupt retail chain's stores and creditors remains unclear if the purchase is approved
POSTED: 1:30 a.m. HST, Nov 23, 2010
Two kamaaina real estate developers have made a bid to take over Price Busters and Let's Party Hawaii stores with an offer to pump cash into the locally owned retail chain floundering in bankruptcy.
Honolulu firms The MacNaughton Group and Kobayashi Group aim to acquire substantially all the assets of ERT Sales of Hawaii Inc., which operates eight Price Busters and Let's Party stores on Oahu, from founder and President Beth Tom.
Tom has agreed to a sale, though U.S. Bankruptcy Court approval is still needed.
Some aspects of the deal remain unclear, including whether all stores would remain open. But the proposal by the MacNaughton-Kobayashi partnership, called Retail Partners Hawaii, is expected to retain ERT's roughly 270 employees. The plan generally has the support of creditors and should help the retailer emerge from bankruptcy.
ERT filed for Chapter 11 reorganization in January after expensive expansion that included a new distribution warehouse and two stores opening in the prior two years amid an economic downturn.
But despite closing one store downtown this year and trying to improve finances, the discount retailer has continued to lose money.
"We just ran out of cash," Tom said. "To go forward we needed a capital infusion."
CHANGING HANDS?ERT Sales of Hawaii, doing business as Price Busters and Let's Party Hawaii, might be purchased in bankruptcy.
» Retail locations: Hawaii Kai, Kailua, Kalihi, Kaneohe, Kapolei, Mililani, Pearl Highlands, Pearlridge
» Founded: 1992 by Beth Tom, who turned a costume jewelry and hair-accessory wholesale business she began in 1985 into Hawaii's largest locally owned discount retailer
» Annual sales: More than $24 million
» Employees: About 270
Source: ERT Sales of Hawaii
ERT listed $8 million in debts and $7 million in assets when it filed for bankruptcy.
Over the first nine months of the year, ERT has accumulated a net loss of $1 million, which grew substantially after a disappointing October that typically is a big month because of Halloween sales.
Part of the disappointing Halloween sales stemmed from a reluctance by some suppliers to ship merchandise to a company in bankruptcy. Competition and the soft economy also were contributors.
Retail Partners said its commitment and experience should restore confidence among vendors and ensure that store shelves are optimally stocked for the holiday shopping season.
The MacNaughton Group has experience operating several retail chains. The company and its partners established Blockbuster Video, Starbucks, Jamba Juice and P.F. Chang's in Hawaii under licensing agreements. After expansion, Blockbuster and Starbucks were sold to their parent companies. MacNaughton partnerships still operate Jamba and P.F. Chang's.
The MacNaughton Group also is a successful shopping center developer. Its projects include Maui Marketplace, Waikele Center, Kapolei Commons and Kona Commons.
Kobayashi Group has partnered with MacNaughton Group, developing residential high-rise towers Hokua and Capitol Place in Honolulu.
Jeff Arce, a MacNaughton Group principal, said Retail Partners expects to revive Price Busters and Let's Party stores by adding new real estate expertise to a well-established retailer.
"We feel they have a great team in place," he said of ERT. "It's a great brand in Hawaii."
Under the asset purchase agreement with ERT, Tom would become a consultant for a year helping purchase merchandise and train new merchandise buyers.
Tom said she has tremendous respect for Retail Partners operators and believes they can take ERT to another level that she faltered at reaching.
"Price Busters has pretty much been my life over the last 18 years, and it is admittedly difficult to hand the keys over to someone else, but I am doing this for all the right reasons," she said. "It's a good thing."
It remains unclear how most creditors would make out under the proposed sale intended to help bring ERT out of bankruptcy.
Retail Partners has arranged to become ERT's largest and top-priority creditor by assuming $2.3 million in loans made by American Savings Bank to ERT and secured by ERT assets. Financial terms of the loan acquisition were not disclosed.
Numerous other creditors have unsecured debts totaling roughly $5 million. Retail Partners, if its bid succeeds, would still need to propose how to satisfy those debts.
Chuck Choi, an attorney representing unsecured creditors, said new owners with investment capital and a track record of success bode well for creditors.
It is undetermined whether Retail Partners will keep all eight stores open. The asset purchase agreement allows store leases to be excluded from the deal. ERT, which already had an opportunity to reject leases, assumed all but its downtown store lease.
In a recent court filing, ERT said the prospects of the company make it unlikely that any other investor would be willing to finance the company's emergence from bankruptcy.
However, under bankruptcy rules, anyone with interest and ability to make a superior offer can make a play for ERT.
A hearing on the $500,000 loan offered by Retail Partners is scheduled to be heard in court tomorrow morning.
If the court approves ERT's sale to Retail Partners, the acquisition could close next month.