The Work

June 9, 2009 6:13 PM

Everything Must Go: K&L Gates, Dewey, Kirkland Nab Distressed Retail Deals

Posted by Zach Lowe

Perhaps no sector of the economy has been hit harder in the last year than retail, as one by one, some of the biggest names in clothing have headed to bankruptcy court to liquidate or reorganize.

But buyers looking for discounts on distressed assets have also struck deals outside of bankruptcy court. On Monday, private equity firm Golden Gate Capital bought J. Jill from Talbots Inc. for $75 million, according to the Boston Globe and lawyers on the deal. That's a steal, given that just three years ago Talbots paid $517 million for the women's clothing line. 

Despite the lower price tags, working on single-asset deals can actually be more complicated than negotiating a complete acquisition of a public company, says Dewey & LeBoeuf M&A chair Morton Pierce, who advised Talbot on the J. Jill sale. That's because the buyer is more likely to pick at small issues during due diligence that might be glossed over in a bigger deal. 

Before the  J. Jill deal, for example, the lawyers for both sides actually tried to track down an elderly woman who may still hold an easement over one company property dating back to 1960, Pierce says. The lawyers never found her to clear up the rights issue, but the deal went forward anyway.

"These are the little things that come up in asset deals," says Pierce, who led Dewey's legal team along with partner Chang-Do Gong. 

Mikaal Shoaib, one of the lead Kirkland & Ellis lawyers who advised Golden Gate, declined to comment. Kirkland partners Nathan Shinn, Chad Rolston, Gary Holihan and Jeffrey Hammes also worked on the deal. 

Another closely watched retail bankruptcy case is Filene's Basement, the chain known for brand-name discounts and the frightening (to us, at least) "Running of the Brides" extravaganza, an annual one-day event marked by pushing, shoving, and shrieking when the retailer sells $12,000 designer wedding dresses for $700 or less.

The chain filed for bankruptcy last month after its former parent company (Retail Ventures, advised by Skadden, Arps, Slate, Meagher & Flom) sold it to a liquidation firm for nothing. (Actually, Retail paid the buyer a nominal fee to take Filene's off its hands.)

On Monday, Men's Wearhouse scooped up Filene's in a bankruptcy auction for $67 million--$45 million more than the original stalking horse bidder, a group led by Crown Acquisitions, offered last month. 

K&L Gates partner Charles "Chad" Dale, who advised the Men's Wearhouse affiliate that won Filene's, could not immediately be reached for comment. Laura Davis Jones of Pachulski Stang Ziehl & Jones represented Filene's. 

The other leading bidder was believed to be a consortium led by Syms and Vornado Realty Trust, according to The New York Times and court records. Blank Rome and Fried, Frank, Harris, Shriver & Jacobson advised Vornado, and Pepper Hamilton and Lowenstein Sandler advised Syms on the bid, court records show. 

Lawrence Gottlieb, chair of the bankruptcy and restructuring practice at Cooley Godward Kronish, has been advising a group of creditors in the Filene's matter for months. He declined to comment on the auction results because the deal has not yet been finalized. 

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