Gottschalks' hopes ride on late bid

Chinese firm plans to keep Gottschalks retail stores open

March 26, 2009 

Gottschalks Inc. said Thursday it has three bids for the department-store chain — including one from a government-controlled retail conglomerate in China that hopes to keep the business running.

Shandong Commercial Group General Corp., one of China's largest retail companies, was named along with the other two bidders in a filing Thursday with the U.S. District Bankruptcy Court in Delaware.

It is the only suitor proposing to buy Gottschalks — which filed for bankruptcy protection in mid-January — as a "going concern."

The other two bids are from companies that would dispose of the merchandise through going-out-of-business sales and close the stores.

Details of the Shandong proposal — such as how many stores it would keep open — were not disclosed Thursday.

Gottschalks Chairman and Chief Executive James Famalette was in meetings throughout the day Thursday — including an after-hours conference with Shandong representatives at the company's north Fresno headquarters — and was unavailable to comment.

An auction for Gottschalks' assets will be held Monday in Delaware. A judge will be asked Wednesday to approve the prevailing bid from the auction.

Gottschalks, founded in Fresno in 1904, operates 58 department stores and three specialty stores. The majority are in California, but other stores are scattered throughout Alaska, Idaho, Nevada, Oregon and Washington. The company employs about 5,200 people.

Shandong operates about 100 stores, including supermarkets and "hypermarkets" in China, according to a May 2008 report by the Li & Fung Research Centre in Hong Kong. Its 2007 sales of about $2.1 billion ranked it among the top 20 retail companies in the world's most populous nation.

Its other businesses include a brewery, a luxury hotel and a major shopping center in its home province of Shandong.

Joseph Penbera, a member of Gottschalks' board of directors, said Shandong was a late entry into the bidding for the company. "This has just been kind of over the transom," Penbera said. "It was really recent."

Penbera expressed relief that at least one bidder wants to keep Gottschalks going.

"My concern has been about the jobs," said Penbera. "To see a company with all these people just 'whoosh' right out of the area would be really bad."

In addition to Shandong, two others are bidding for Gottschalks.

One is a consortium of four liquidation firms that Gottschalks named earlier this month as the lead bidder, or "stalking horse," in the auction. That creates a floor for the auction, effectively guaranteeing Gottschalks' creditors a minimum payment for the company.

The same stalking horse bidder also conducted liquidation sales for bankrupt chains Mervyn's and Circuit City, among others.

The final bidder — a joint venture of real estate and liquidation companies — also proposes to sell off the assets and shut down Gottschalks.

Staying open a bidding plus

Gottschalks must now weigh which offer will best allow the company to satisfy its creditors, although the company has some discretion to favor a bidder that would keep the business running.

The stalking horse bidder, however, has an edge going into Monday's auction. If another bidder beats its price, the winner must pay a "breakup fee" of $750,000 for a going-concern bid or $995,000 for a liquidation. Any liquidator must also beat the stalking horse bid by at least $200,000.

Gottschalks was making a go of it until the recession hit, overwhelming the company with a string of operating losses and causing its stock price to tumble. It filed for bankruptcy protection in mid-January, reporting assets of $288.4 million and debts of more than $197 million at that time.

In November, Gottschalks announced it had reached an investment agreement with a Chinese company, Everbright Development Overseas. But the deal, in which Everbright would inject as much as $30 million into Gottschalks in exchange for a 75 percent majority ownership stake, was terminated by the Chinese in mid-December.

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