Sales Price More than Doubles With KRyS Efforts
Published in Law360, (January 21, 2016) By Jeff Montgomory
Mattel Inc. has added bankrupt children’s tablet-maker Fuhu Inc. to its toybox, submitting a $21.5 million bid for the company in a stalking horse auction in Delaware and beating a private equity fund led by pro golfer Greg Norman, according to Thursday court filings.
The Mattel deal, outlined in papers filed in bankruptcy court on Thursday, more than doubled the minimum bid set earlier this month, when the private equity fund led by Norman offered $10 million for the company.
Norman’s offer via GWS Fuhu LLC narrowly topped Mattel’s original, $9.5 million offer to buy Fuhu under a rescue plan included in the tablet-maker’s initial bankruptcy filing on Dec. 7.
Comments were not immediately available from Mattel or Fuhu. Neither company had yet noted the development on investor websites.
A court filing on Thursday said that the deal contemplates “the payment of a $250,000 break up fee” to GWS Fuhu as well as a waiver and release for a $300,000 prefiling loan.
Fuhu makes the trademarked “nabi” brand children’s tablet. The company had described itself on its website as “the leading designer, seller and innovator of high-tech consumer products, services and solutions for children and their families,” with an emphasis on social responsibility.
Nabi and related products were sold in more than 10,000 retail outlets prior to the bankruptcy including Target, Best Buy, Costco Wholesale, Toys ‘R’ Us and Wal-mart stores, according to Fuhu.
In December, however, the California-based company said it faced critical shortages of ready-to-sell “nabi” tablet products and was struggling with creditor restrictions that blocked all access to funds already deposited in a PayPal account by current buyers of the child-oriented tablets.
On Thursday, U.S. Bankruptcy Judge Christopher S. Sontchi approved a final order allowing Fuhu to continue using its PayPal account and other cash management systems for while in bankruptcy. Access to those accounts, Fuhu said, prevented the shutdown of a digital platform used to support four million systems already sold and in use by customers.
Company creditors have filed a number of objections in recent days, including one from Hon Hai Precision Co., a multinational, Taiwan-based electronics manufacturing company and major supplier to Apple.
Hon Hai said in a bankruptcy court objection that Fuhu appeared to have worked out the sale in secret, with inadequate marketing efforts. The company said it had about $108 million in claims against Fuhu, making it the tablet-maker’s largest creditor.
In December, Fuhu said Hon Hai and associated companies played a part in Fuhu’s deteriorating financial condition, refusing to deliver new tablets to the company. Fuhu had previously sent $90 million worth of products back to Hon Hai, alleging that they arrived too late for 2014 holiday sales.
Fuhu’s finances reached full-fledged crisis in November when companies holding first priority secured interests over all of Fuhu’s assets began issuing default notices and “swept” more than $4.5 million from Fuhu’s bank accounts. The default actions, taken by the creditors after learning of Fuhu’s troubles with Hon Hai, left the company with little cash or inventory despite having had $195 million in revenues in 2013.
Fuhu is represented by Colin R. Robinson and Michael Seidl with Pachulski Stang Ziehl & Jones LLP.
Mattel is represented by Peter Gilhuly and Ted Dillman of Latham & Watkins LLP and Michael Nestor and Rodney Square of Young Conaway Stargatt & Taylor LLP.
GWS Fuhu LLC is represented by Justin K. Edelson and Christopher A. Ward of Polsinelli PC, Richard Jehangir Mcintyre of Mcintyre Panzarella Thanasides Bringgold & Todd PA and Jay Michael Sakalo of Bilzin Sum berg Baena Price & Axelrod LLP.
The case is In re: Fuhu Inc. et al., 1:15-bk-12465, in the U.S. Bankruptcy Court for the District of Delaware.
Editing by John Quinn