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ASE explains why it rejected the largest bid for its assets

Published January 22, 2019
At last week's auction, a group led by Ideal Bike outbid Head Sports for ASE's assets by $1 million. But ASE said Head's bid was best, and charged that Ideal had sold Fuji and Kestrel bikes last month in violation of a court order.

CHAPEL HILL, N.C. (BRAIN) — Two sales hearings, scheduled for Tuesday morning here for the assets of Advanced Sports Enterprises, have been continued to Feb. 1. At the first, a bankruptcy judge was set to decide whether to approve a bid of $21.5 million from Head Sports for most of ASE's assets, including Performance Bicycle, Fuji and other brands. The second hearing will consider whether to approve Specialized's $700,000 offer for the U.S. rights to the Roubaix trademark, owned by ASE.

In a court filing last week, ASE explained why it agreed to accept the bid from Head, despite a bid from a group led by Ideal Bike that was $1 million larger.

Ideal is a Taiwan-based manufacturer that is both an ASE creditor and debtor. At the auction last week, Ideal and three partners submitted a $22.5 million bid for the ASE assets. But ASE, in consultation with several of its largest creditors, including Wells Fargo and York Partners, opted for the smaller offer.

ASE, in the filing, said the Ideal group was a loose partnership that could have fallen apart before the sales closing. "Head is more certain to close on its bid, simply by virtue of the fact that it is a single bid submitted by a large and reputable global corporation, who is highly likely to close on the sale transaction," ASE said.

ASE also dropped a bombshell at the auction, which began Wednesday and lasted until about 2 a.m. Thursday. The company charged that Ideal, in violation of the court's order, had sold a shipment of Kestrel and Fuji bikes to its German distributor last month.

On Dec. 21, the court agreed to cancel licensing and manufacturing contracts between ASE and Ideal, which barred Ideal from selling any products with the ASE trademarks, including bikes Ideal had already manufactured. Ideal has appealed that order to a U.S. District Court in North Carolina. But at the hearing, ASE CEO Pat Cunnane produced a bill of lading showing that on Dec. 26 Ideal had shipped about 400 bikes from Taiwan to Advanced Sports GMBH, a German distributor that is partially owned by ASE.

"Despite the terms of this Court's Order, Ideal sold bicycle inventory containing the Debtors' trademarks," ASE's filing reads. "Ideal's actions raise questions regarding (i) whether it could be considered a good faith purchaser, (ii) whether it has the financial ability to close, and (iii) whether it would honor its bid and an order approving the sale, since it has already disregarded a prior order of this Court."

In a limited objection to the sale filed Monday, Ideal said it was not responding to ASE's "ad hominem attacks," but will at the appropriate time and place. It noted that it had been deemed a qualified bidder at the auction and said it was encouraged to bid for the assets. It said its group bid drove up the price that Head ultimately agreed to pay for the assets.

Ideal is not challenging the results of the auction but wanted the court to preserve its rights related to some of the trademarks.

"Ideal understands that Head is acquiring the Debtor's trademarks subject to whatever rights Ideal may have in the trademarks and to assume the obligation to defend any litigation related to such trademarks. Ideal reserves the right to pursue any rights it may have, whether on appeal on otherwise and should not be enjoined from pursuing such rights. Notwithstanding the foregoing, Ideal is willing to discuss a resolution of the trade mark issue with Head in advance of the hearing."

Advanced Holdings, a private equity firm based in Hong Kong that made a $7 million investment in ASE in 2017, was part of the Ideal group that made the $22.5 million bid on the ASE assets. Advanced Holdings also filed a limited objection before the sales hearing in order to preserve its standing as a secondary creditor to ASE.

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