Wrinkle in Mainland T-shirt firm Big Dog Holdings Inc. has dropped its original $10 million purchase offer for Crazy Shirts and is instead expected to compete with other bidders to buy the troubled local retailer at an auction scheduled for tomorrow in bankruptcy court.
Crazy Shirts sale
The bankrupt T-shirt retailer
will likely be auctioned tomorrowBy Tim Ruel
truel@starbulletin.comThe Sept. 11 attacks and the resulting drop in tourism have significantly cut Crazy Shirts' sales, according to a Friday filing in U.S. Bankruptcy Court. The retailer closed two stores in Waikiki last week and plans to close another two stores, one in Haleiwa and another in Guam, said Randy Yeager, Crazy Shirts president and co-chairman. The Aiea-based firm has also trimmed between 10 and 30 production employees because of fallen orders, he said. The exact number of production jobs varies weekly, depending on orders, Yeager noted.
Big Dog publicly announced its offer for Crazy Shirts just the day before the terrorist attacks. As part of the deal, Crazy Shirts filed for Chapter 11 reorganization bankruptcy in Hawaii on Sept. 10, saying it had debts of roughly $24 million. Big Dog has since lost its financing to buy Crazy Shirts, but the firm still wants to make a bid, according to the bankruptcy filing.
Big Dog won't be alone in court, however. New purchase rules will allow any other qualified bidders to show up in court with offers, and at least two and as many as four other potential buyers have shown an interest, said Ted Pettit, bankruptcy attorney for Crazy Shirts. Bidders will also face fewer restrictions than before. "We may have a good old-fashioned auction," Pettit said.Pettit would not disclose the identities of potential buyers. No bidders other than Big Dog had filed an offer with the bankruptcy court as of Monday.
Pettit noted that bidders could elect to purchase specific assets of Crazy Shirts, as opposed to buying the whole company. Big Dog had said it would keep the Crazy Shirts brand as a subsidiary. Another buyer would not have to keep that promise.
Under the new court procedures, the bidder with the highest offer will get the nod from Crazy Shirts, but the purchase will require the formal approval of U.S. Bankruptcy Judge Lloyd King. Following tomorrow's auction, Crazy Shirts' creditors will have two weeks to object to any purchase.
For example, landlords for Crazy Shirts' retail outlets can object if they think the buyer won't be able to keep the shops performing up to standards, Pettit said. Several landlords had objected to the original offer from Big Dog for that reason, court records show.
Crazy Shirts' two main secured creditors, Bank of Hawaii and Congress Financial Corp., will also have the right to object to any sale. Under the previous offer, Bank of Hawaii was to receive payment for its senior core debt of $3.3 million, but walk away from $12.9 million in secured and unsecured debt. Neither lender had objected to the previous offer from Big Dog.
It is not clear how much Big Dog will offer for Crazy Shirts tomorrow. An official at the Santa Barbara, Calif.-based firm did not return a request for comment yesterday. Big Dog has not officially terminated its original purchase with Crazy Shirts, but the deal is effectively dead, Pettit confirmed.
Under new auction rules, Big Dog no longer has the guarantee of getting a $400,000 break-up fee plus expenses if another purchaser beats its offer, which had been part of the original court order.
The recent downturn in Crazy Shirt's financial health was not a surprise to retail analyst Stephany Sofos, who noted that Waikiki's retailers, on average, took an 80 percent hit in sales immediately after Sept. 11. Sales have since returned, but are still down 30 percent from last year, she said. "Crazy Shirts is a snapshot of what all the Hawaii retailers are facing," Sofos said.
The two Waikiki stores that closed last week were at the Hyatt Regency Waikiki and on Royal Hawaiian Avenue. "These are stores that we've been watching for quite some time, and they were a challenge even before the Sept. 11 events," Yeager said.
Crazy Shirts now has 40 stores in Hawaii, Guam, Nevada, California, Florida and Louisiana, he said.
Crazy Shirts, founded in Waikiki in 1964, has been struggling with profitability for years, prompting the sale of the company. The company benefited from rapid expansion all the way until mid-1996, when Crazy Shirts had more than 70 stores grossing more than $90 million. For the year ended in February, sales were $47.7 million, according to a statement from Big Dog.
Souring real estate deals and a slump in Asian tourists to Hawaii led Crazy Shirts to shutter stores, fire staff and temporarily move operations to California in the late 1990s.