M&A

Fishing for Bargains in Chapter 11’s Wake

Companies as diverse as Enterprise Rent-A-Car, Bell Canada, and video-gamer Activision Blizzard have targeted properties of bankrupt firms.
Stephen TaubMarch 4, 2009

Depending on how you look at it: Corporate sharks are circling bankruptcy’s debris-filled waters for wounded prey; or, bargain-hunters are seeking and finding some great deals among companies that have made reorganization filings.

In the past few days, buyers pouncing on the assets of bankrupt competitors — or trying to — have included Enterprise Rent-A-Car, Bell Canada Enterprises, and Activision Blizzard Inc.

Enterprise would bring Advantage Rent-A-Car out of bankruptcy for $19 million, if the Enterprise bid is accepted by the bankruptcy court. The asset purchase transaction, expected to close in April, would give Enterprise the ability to close or continue to operate any of Advantage’s rental car facilities. The deal also would apply to certain other Advantage properties that recently closed.

Bell Canada says it has agreed to acquire The Source, the consumer electronics retailer owned by bankrupt Circuit City. Bell  Canada says the deal would enhance the growth of Bell’s wireless, digital TV, Internet, and home phone services. “The Source is a respected leader in consumer electronics retailing right across Canada,” according to Bell Canada president and CEO George Cope. “Its acquisition supports Bell’s strategic imperatives to accelerate wireless and leverage momentum in wireline services like Bell TV, Bell Internet and Bell Home Phone.”

In addition to its lineup of consumer electronics, The Source by next January would plan to carry the full array of Bell consumer services at its more than 750 stores across Canada, including its wireless products, high definition television services, high-speed Internet, and other products. Bell Canada says The Source has a track record of profitability over the past seven years, in the latest 12 months turning in EBITDA of roughly $27 million on $643 million in revenue. The Source, acquired by Circuit City Stores in March 2004, was part of Circuit City’s Nov. 10 Chapter 11 filing.

Video gamer Activision Blizzard’s prowling has not yet brought it an identified target, although the company told Bloomberg News that it has $3 billion in cash and no debt, and is looking for acquisitions as the recession brings down the prices of potential targets. “The combination of Activision holding a fair amount of cash and presumably prices being depressed, not only for publicly traded companies, but also likely for new intellectual property licensing rights, should certainly create opportunities,” according to CEO Michael Griffith.

Meanwhile, a number of struggling companies not operating in bankruptcy are unloading assets. Citigroup, for one, sold its German retail banking operations to Credit Mutuel for Euro 5.2 billion in cash. And retail chain operator Gottschalks Inc., which filed for bankruptcy on Jan. 14, says it received approval from the bankruptcy court to extend its auction date until March 30, giving it more time for transactions that could involve selling the whole company. It says it is in active discussions with multiple potential buyers.