CENTRAL ISLIP, NY (BRAIN)—Dorel Industries purchased Iron Horse Bicycle Company for $5.2 million in an auction Monday in federal bankruptcy court. The deal is scheduled to close on Wednesday.
Dorel owns Pacific Cycle, along with Cannondale, GT, Mongoose and Schwinn brands.
Four other companies—Kent International, Care Bicycles, Dick's Sporting Goods and Outdoor Cycle Group, a company owned by the son of Iron Horse president Cliff Weidberg—also submitted bids for Iron Horse.
Taking place in a small room of over 30 lawyers, company executives and Department of Justice officials, the bidding process was heated but decorous. The respective parties placed over 90 bids by the end of the six-hour process. The dramatic highlight came after Kent and Care withdrew from the auction, and Outdoor Cycle formed a bidding coalition with Care in an attempt to muscle out deep-pocketed Dorel.
Both Weidberg and his son, Randall Scott, were present for the auction. Though all parties maintained their civility throughout the process, the mood in the room became strained as Weidberg, counsel Andrew Thaler, and a coterie of accountants were forced to leave the auction room numerous times to discuss whether each offer was actually of greater value than the last. Because of the variety of notes, bullet notes and interest arrangements that could accompany each bid, the group was forced to recess to establish a valuation for more complex bids, so that other bidders could up the ante accordingly.
Bidding opened at $2.775 million in cash and increased in increments of $25,000. Though Outdoor Cycle's one-time pre-auction bid of $5.2-plus million in cash, notes and revenue-sharing would likely have been the most lucrative for the estate over time, Judge Alan Trust ruled yesterday afternoon that Pacific's all-cash offer of $5 million plus a $220,000 one-year note was best for the involved parties.
The sale includes existing Iron Horse inventory, as well as any trademarks and patents owned by the company. According to the purchase agreement, Dorel will also pay CIT Group, Iron Horse’s secured lender, $220,000 on the first anniversary of the closing date of the sale. CIT Group will pay a carve-out of at least $150,000 to the Iron Horse’s unsecured creditors.
Iron Horse was forced into bankruptcy in March by three Asian suppliers who were due more than $5 million in back debt. The company owes another $17 million to dozens of other unsecured creditors, as well as about $4 million to CIT Group.
The bankruptcy sparked a blame game between former principals of the company with president Cliff Weidberg filing a civil lawsuit against former longtime vice president Stewart Barnett and former chief financial officer Nick Aversano accusing the two of falsifying financial statements to inflate the value of the failing company. Suspension designer Dave Weagle is also pursuing litigation against Iron Horse for back debt; that suit will now fall to Dorel for resolution.
According to Doug Pick, counsel for Outdoor Cycle and Randall Scott, the online retailer may strike an agreement with Dorel's Pacific Cycle to purchase the remaining bicycles in inventory at Randall Scott's Colorado warehouse, so that they can continue selling them online. “Outdoor [Cycle] has a lot of respect for Pacific's ability and talent,” Pick said, “and we hope to have a long term relationship with them.” Those talks will be initiated at the end of the week, once the sale is finalized on Wednesday, July 15.
—Nicole Formosa, Chris Dannen