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HMX Group (Hickey-Freeman, HSM) Files Chapter 11 UPDATE, NOW TO BECOME HIPSTER

post #1 of 16
Thread Starter 
http://www.wwd.com/menswear-news/retail-business/hmx-under-deadline-pressure-6406141?full=true

from WWD
By Vicki M. Young and Jean E. Palmieri


The other shoe is about to drop for HMX Group.

The company is running out of time as liquidity constraints are forcing it to decide as soon as this week whether to sell the firm or file for bankruptcy court protection.

The liquidity constraints are due to a lack of funding from its corporate parent, Mumbai-based S. Kumars Nationwide Ltd.

Doug Williams, chief executive officer, was traveling the past three days and could not be reached for comment.

While not a done deal, financial and market sources said the likely scenario is that HMX will voluntarily file for Chapter 11 bankruptcy court protection for the second time in four years.

Since midsummer, HMX has been fielding unsolicited offers from potential bidders. Interested buyers include two brand management firms, Authentic Brands Group and Iconix Brand Group, and private equity firm Bluestar Alliance.

In a bankruptcy scenario, sources said one of those bidders would be chosen as the "stalking horse" for the firm's intellectual property assets. Sources expect that, regardless of whom becomes the final owner of HMX, Williams and Joseph Abboud, president and chief creative officer, would continue with the firm. Both are considered the driving force behind the turnaround efforts at HMX and are respected for the operational and design changes they've made at the company.

Sources said the stalking horse was likely to be Authentic Brands. The so-called stalking horse agreement in a bankruptcy proceeding typically sets the base value for a sale, and a court-sanctioned auction usually provides for additional bids in set increments. James "Jamie" Salter, ceo of Authentic, did not return calls for comment on Friday. One individual said Bluestar did not want to be the stalking horse, and another said Iconix, while interested, was expected to come back into the bidding in a bankruptcy court auction. All three entities have experience with fashion and apparel firms

Authentic's most recent deal was in June when it acquired the IP assets of Sportcraft Ltd., through which Authentic said it planned to reenergize the recreational sports industry. The company, which seems to favor the action sports and entertainment and celebrity licensing sphere, owns the IP assets of Marilyn Monroe, Silverstar and Tapout. Authentic, which has the backing of Leonard Green & Partners, includes on its board Kenny Finkelstein, the ceo of Knight's Bridge Capital Partners, a Toronto-based private equity firm.

Iconix, headed by Neil Cole, has a portfolio of consumer brands in which it either owns or has an interest, including Candie's, Badgley Mischka, Joe Boxer, Rampage, Mudd, Mossimo, London Fog, Ocean Pacific, Bongo, Starter, Marc Ecko, Ed Hardy, Rocawear, Danskin and Material Girl, among others.

Bluestar, founded in 2007 by Joseph Gabbay and Ralph Gindi, typically buys consumer branded firms and then converts the operations into licensing entities. Its current portfolio of brands include Joan Vass, Kooba, Yak Pak, Kensie, Mac & Jac, English Laundry, Harvé Benard, Hot Kiss and Ron Chereskin. Bluestar, which acquired a majority stake in Liz Lange Maternity in November 2007, sold its investment last month to Cherokee Inc.

As reported, HMX closed on a new financing facility with Salus Capital Partners in August, but it was contingent on cash infusions from SKNL, which has been in business since 1948 and is one of India's largest apparel and textile companies, on an installment basis. That contingency was required because the Salus financing had been set to close in June, but had hit a roadblock due to a required funding by SKNL that never materialized.

There were concerns last month that SKNL might not be able to meet the first installment requirement, so HMX began an unofficial sale process and held talks with potential bidders at the same time that it weighed its bankruptcy option. It wasn't immediately clear whether Salus would also provide debtor-in-possession financing should the Chapter 11 filing materialize, although there are also other available options for DIP financing.

HMX is best known for its Hickey Freeman and Hart Schaffner Marx clothing labels, the latter being a favorite of President Obama. The company also owns Coppley, Bobby Jones and Palm Beach, which was recently reintroduced. It also holds the license for Argyle Culture, the preppy-themed line from Russell Simmons that relaunched at Macy's this fall and is codesigned by Abboud and Simmons. In a bankruptcy, HMX is expected to keep the Argyle Culture license.

Glen Ferraye, president of Simmons Design Group, said despite HMX's problems, "Business is normal." He said HMX is "in the process of delivering fall" and has "delivered on the custom shop build out at Macy's." He said spring orders for the line have been placed and HMX has begun "developing fall and holiday 2013."

Although he is not privy to HMX's sale discussions, Ferraye said he's certain that Argyleculture, a men's line targeted to the "urban graduate," is "being presented as a valuable property with tremendous upside potential that is an asset to the company."

HMX's history originated from the now-defunct Hartmarx Corp., which was acquired out of bankruptcy by SKNL in August 2009 and renamed HMX. London-based Emerisque Brands holds a minority stake in HMX. The transaction was a $105 million debt and assumed liability deal. Since the 2009 acquisition, HMX has paid down over $35 million of debt.

SKNL had grand plans for HMX. Since then, the Indian firm has run into problems of its own.

In late 2011, the Indian economy forced SKNL to delay its planned initial public offering for the Indian operations of Reid & Taylor. Last month, SKNL had to delay its annual shareholders meeting. Also last month, the Serious Fraud Investigation Office received a complaint regarding corporate governance violations alleged against SKNL, which the Mumbai Registrar of Companies is reviewing. In a regulatory filing with the Bombay Stock Exchange, SKNL said, "The matters raised by the individual are frivolous and baseless.

Donna Karan International last month pulled back its license for its DKNY men's wear from SKNL, a five-year deal that was inked in 2010. Patti Cohen, executive vice president of global marketing and communications for Donna Karan, confirmed that the association has been terminated and said the license has not yet been reassigned.

When SKNL took a 90 percent stake in HMX, its plans were grand and far-reaching in scope. Nitin Kasliwal, vice chairman and managing director of SKNL, hired Williams to run the company, Abboud to head its design and proceeded to put an aggressive plan into motion to help the company regain a top position within the men's wear arena.

Kasliwal said shortly after the purchase that within five years he expected to grow HMX into a "multibillion-dollar enterprise with various categories of product."

The first steps were to reorganize the company and revamp the product offering. Headquarters shifted from Chicago to 125 Park Avenue in New York City. Back-office duties for the brands, previously separate, were consolidated in Rochester, N.Y., where the Hickey Freeman factory is located.

HMX then embarked on a frenzied drive to upgrade and revamp its product offering. Under Abboud's tutelage, silhouettes were modernized, a dose of fashion was injected into the offerings and lifestyle collections were created for each label.

Plans included exporting the Hickey Freeman, Hart Schaffner Marx and Bobby Jones lines internationally; initiating a retail rollout for Hickey Freeman and the launch of a new concept called Streets that would house all the company's labels, and the hiring of powerhouse ad executive David Lipman to handle the firm's marketing initiatives.

Observers wondered if it was a case of too much, too soon, a problem that came to a head when SKNL's issues surfaced.

"Things are unraveling for SKNL and Nitin has become basically invisible," said one source close to the company. "And that's really put HMX in dire straits."

In recent weeks, HMX lost the license for the Ivanka Trump women's line, which sources said was a blow to the company. "They lost a fortune on that," said one source. "But they never should have been in that business to begin with."

Another differentiating factor — as well as a major stumbling block to any acquisition — is HMX's North American factories. In addition to the Rochester plant, HMX also owns a facility in Chicago and one in Hamilton, Ontario, Canada.

The company is proud of its American roots and during the controversy that arose this summer when it was discovered that the U.S. Olympic uniforms designed by Ralph Lauren were made in China, Williams joined forces with Senator Charles Schumer (D., N.Y.) to approach the U.S. Olympic Committee to say HMX "stands ready" to produce the uniforms in its American factories.

Despite the flag-waving, the factories — and their unionized workforce — have been a sticking point for the company since its Hartmarx days. While the brands produced by HMX, particularly Hickey Freeman, are seen as an area of strength, the cost of maintaining manufacturing facilities in America has been a barrier to any company interested in acquiring the company.

Market sources believe the unions are on board with a sale of the company, as long as that sale ensures the factories continue to operate. That can't be guaranteed in a bankruptcy filing since the priority in any sale of assets is obtaining the best offer to satisfy creditors' claims against the bankrupt estate.

Even so, HMX has stuck by its "Made in America" stance.

As Kasliwal said in 2010: "Hickey Freeman is an American icon and it would be foolish for it not to be made in America."
Edited by TonyThe Tailor - 10/22/12 at 4:14am
post #2 of 16
Thread Starter 
http://www.mrketplace.com/44367/union-workers-brace-for-more-hmx-trouble/

HMX Workers prepare to occupy factories
post #3 of 16
I don't see how union workers occupying the factory can solve the problem that the company is broke.
post #4 of 16
SKNL is to blame.

But I understand that Doug Williams and Joe Abboud built out a beautiful(expensive Looking) showroom.
do you think those two will forgo a paycheck to make sure vendors and workers are paid?

there is a big HMX sample sale next week.
post #5 of 16
HSM is 125 years old this year and HF is 113- it would be a real shame to lose these factories just as people are showing a renewed interest in Made in America- it's really not an easy thing to manufacture clothing here these days. That said, Doug has consistently maintained his commitment to the factories here and we are confident that he will work something out. Joseph has been absolutely great to work with and has done some amazing things for the company.
post #6 of 16

Damn.

 

I'm glad my old man's not alive to witness this.

 

He was a Hickey, HSM, Palm Beach man all his life.

post #7 of 16
Thread Starter 
I think the blame goes all the way back to HartMarx as they made very bad decisions for years that crippled the company.

Hickey-Freeman has taken all of the make from the garment ("completely mechanized!" the salesman said to me proudly. The salesman also tried to sell me the garment on "it's iconic name" rather than the quality of the garment. That's what the problem is.) and it's target clients realize that it really isn't a $1,600.00 garment anymore that there are much better made garments in that price range ( i.e. Samuelsohn), plus the old guard HF clients pass my store every day in a hearse.


As for HSM, it will end up as Dillard's house label and be made in Mexico and/or China.
post #8 of 16
Quote:
Originally Posted by TonyThe Tailor View Post

Hickey-Freeman has taken all of the make from the garment ("completely mechanized!" the salesman said to me proudly. The salesman also tried to sell me the garment on "it's iconic name" rather than the quality of the garment. That's what the problem is.) and it's target clients realize that it really isn't a $1,600.00 garment anymore that there are much better made garments in that price range ( i.e. Samuelsohn), plus the old guard HF clients pass my store every day in a hearse.

A few years ago Hickey Freeman modernized a number of the operations that were no longer being done by any manufacturer at a comparable price point. For example, the undercollar was basted on before being shaped, the top collar was then basted on, trimmed, and drawn on entirely by hand. This is an operation that you will only find on a garment such as Brioni or Kiton. It could be argued that a collar which is die-cut before being assembled and then attached to the garment (as is now done at both the Samuelsohn and Hickey Freeman facilities) is much more precise and consistent than one which is assembled by hand, and in that sense the HF garment is more mechanized than it used to be. For a long time, many operations were still being done by hand at Hickey Freeman which were being done by machine at Samuelsohn (as they were not thought to add substantial value to the garment when done by hand) and the move toward more "mechanization" was, in fact, an attempt to more closely match what the competition was doing. Samuelsohn has always been respected as a beautifully-made garment which represents excellent value so many in the industry look to them for ideas about how to deliver a quality garment at a reasonable price.


Quote:
Originally Posted by TonyThe Tailor View Post

As for HSM, it will end up ... made in Mexico and/or China.

Nobody in the company wants to see that happen, not least for the integrity of the product but also for the sake of the 600 people whose livelihood depend on the jobs remaining here.
post #9 of 16
Thread Starter 
While that may be true, the problem is as a retailer, Samuelsohn is much more garment oriented rather than marketing oriented as HF is. I get many new Hickey's in my shop to refit or repair and after I show them a Sammy or a Southwick garment (or trade them up to Oxxford) it is easy to convert them over. The older clients always say without fail: "these aren't the quality they used to be, but the price keeps going up". The younger clients which they need usually bought it on ebay or from a discount website.

It's sad that this is happening but choices made by management are to blame and the workers suffer because of it.
post #10 of 16
A shame...I work close to the Hickey-Freeman factory and I still wear a 3-button Hickey-Freeman jacket that my father wore before me.
I don't know how old the jacket is, but it is pretty old.

hf-123.jpg
post #11 of 16
Thread Starter 
Just filed Chapter 11 this morning
http://www.wwd.com/business-news/financial/hmx-group-files-chapter-11-6434586?src=nl/newsAlert/20121019-1
by Vicki Young from WWD

HMX Group and related entities on Friday morning filed a voluntary Chapter 11 petition for bankruptcy court protection in Manhattan.

The company’s Canadian affiliates are not part of the bankruptcy filing.

HMX also has up to a $65 million debtor-in-possession credit facility with Salus Capital Partners, its pre-petition lender.

The company signed an agreement to sell the firm’s intellectual property assets to Authentic Brands Group, with the new owner to license manufacturing of the business to an operating entity that will be managed by existing management. The agreement of sale is subject to better offers in a bankruptcy court auction.

According to the Chapter 11 petition, the company listed assets of up to $50,000 and liabilities of between $50 million to $100 million.

The largest unsecured creditor is listed as a Hong Kong firm Pacificways Ltd. at $1.5 million.


http://www.authenticbrandsgroup.com/
post #12 of 16
Thread Starter 
http://www.wwd.com/business-news/financial/hmx-group-files-chapter-11-6434586?module=Business-hero
More details emerge:
(from WWD this morning, my emphasis in Bold Italics)

As part of the bankruptcy filing, HMX signed an agreement to sell the company to Authentic Brands Group, with the firm’s U.S. factories, showrooms and other assets of the operating component to be sold to a new entity, or Opco, that will be owned and managed by existing management. As the licensee, Opco will be required to pay a royalty to Authentic Brands.

The agreement, with Authentic Brands as the “stalking horse,” is subject to better offers in a bankruptcy court auction.

HMX faces significant hurdles even under the plan unveiled Friday.

Authentic Brands, with the backing of Leonard Green & Partners, is seeking to buy the company’s brands. But it is not funding the operating division, although it will keep production at the loss-making plants. That means HMX chief executive officer Doug Williams will need to find an investor who can help him buy and fund the operating division. Some financial experts believe that could be a tall order, given that it typically is hard to get financing for a new entity, Opco, that doesn’t have a proven track record in terms of profitability.

According to James “Jamie” Salter, chairman, president and ceo of Authentic Brands, his firm plans to use its marketing expertise to help the company reach a younger customer. Other key points to his strategy include divesting the Canadian factory, acquiring other brands that are synergistic and will help keep the American factories full, and taking the labels international.

“We’re not changing the model,” Salter told WWD. “Doug and his management team will be the licensee. Doug will keep the two factories in America and another strategic partner will take the Canadian factory.” He said he’s currently negotiating with two companies, both of which currently operate their own production facilities. He declined to identify the two prospective buyers.

Salter said Williams has already lined up the financing to create an operating company. “But he’d like to have better financing so he’s shopping the deal he has,” Salter said.

Williams declined to comment about the specifics of the Authentic Brands deal.

Salter said one of the key selling points for Authentic Brands’ bid is that “we like that it’s American-made. We think there’s a play there. The brands are really good, we just need to put some life back into them.”

He said Hickey Freeman and Hart Schaffner Marx appeal primarily to men over 35. “But we’re really good at social media and the celebrity end and we will focus on making them more hipster. The styling is great, we just have to bring them to life.”

Authentic Brands’ most recent deal was in June when it acquired the IP assets of Sportcraft Ltd., through which it said it planned to reenergize the recreational sports industry. The company, which seems to favor the action sports and entertainment and celebrity licensing sphere, owns the intellectual property assets of Marilyn Monroe, Silverstar and Tapout.

Salter also believes there’s an opportunity to bolster the brands’ sportswear offering. “If we can get the mix better, we believe we can grow this company.”

Williams emphasized that there’s interest in keeping HMX’s operations intact because speed-to-market issues, higher labor costs overseas and shipping costs worldwide give the firm a competitive advantage by manufacturing Stateside. “American manufacturing is more competitive today than it has been in a long time,” he noted.

Williams also disclosed that Opco won’t be going forward with the special markets group, which produces the Pierre Cardin and Austin Reed labels. While the business is substantial, it’s not profitable, the ceo said.

But the overriding question remains: What’s going to happen to the factories? “That’s the million-dollar question,” one source said.

“There’s no question mark about the factories,” said Williams. “There’s no question in my mind that the company moving forward will operate factories.…We believe in our people and our factories.”

He said he plans to visit the factories in person this week to update them on the situation.

WWD also has learned that Authentic Brands’ bid might not have been the highest offer received by the company, although it was the one that supposedly allowed for the continuation of the operating division. And that’s where the components of the bids got interesting, sources said. As reported, all potential bidders, including Authentic Brands, were interested in the IP assets of HMX.

It is believed that Authentic Brands’ bid included just the valuation of the IP assets, and not other HMX assets, since those are considered part of the going-forward operations. The other bids were said to have included valuations for the IP assets, and for other assets not needed when there is no going-forward operation, such as HMX’s real estate, inventory and accounts receivables. That might mean that the sum of those parts equaled to a higher bid than the one Authentic Brands put on the table.

Politically, it made sense for HMX to choose Authentic Brands since it gives management a fighting chance to try to keep factory jobs in the U.S.

There’s a question of whether Authentic Brands as licensor could terminate the licensing arrangement and at some point move jobs overseas. According to Williams, that’s not possible.

“The license agreement provides for a long-term license,” he said, adding that there’s no provision in the contract where Authentic Brands has the option to end the license early.

Noel Beasley, president of the union Workers United, said he is aware of the Authentic Brands bid, but not with the specific details such as how the operating company will be funded.

“That will be disclosed [in the bankruptcy] and reviewed by the court,” he said.

There are union contracts at each of the three factory locations. “We would certainly anticipate that anyone buying the company would assume the contract,” Beasley said.

The union president also said there could be a renegotiation of the union contract, and that the union is prepared to negotiate if needed. But would obligations under the old contracts, such as pension benefits and health care, go by the wayside?

Not necessarily, Beasley said, adding, “We would bargain on behalf of our members. We’ve been down this road a lot of the time with [garment manufacturing]. We’re not particularly worried. We’re looking for buyers with deep pockets who can fund the operation.”

And if it looks as if there might not be solid funding in place for a new HMX operating company?

“That’s when we start the boycott process. We’ll do whatever we need to do,” Beasley said.

The union already had revealed a plan to step up political pressure over the factories, and had reached out to Ron Burkle’s Yucaipa Cos. about bidding for HMX.

Both Williams and the union president said they’ve had the requisite support from lawmakers. They include lawmakers on Capitol Hill — Sen. Charles Schumer (D., N.Y.), Rep. Louise Slaughter (D., N.Y.) and Rep. Jan Schakowsky (D., Ill.) — and local politicians Illinois Gov. Patrick Quinn and Mayor Martin Moylan of Des Plaines, Ill., where the shuttered Seaford Clothing Co. plant was located.

For the immediate future, it’s business as usual.

The DIP facility will “allow HMX to flow fabrics to finished goods and ship the orders on time to the retailers,” Williams said.

“We are pleased to provide a DIP facility to HMX Group that provides the company with the liquidity, time and a runway to effectuate a transaction that seeks to maximize value for all of the company’s constituencies — its employees, management, shareholders, vendors and the estate,” said Andrew H. Moser, president of Salus Capital.

HMX’s predecessor, Hartmarx Corp., filed for bankruptcy court protection in 2009 in Chicago, and the operating division was acquired out of bankruptcy by Mumbai-based firm S. Kumars Nationwide Ltd., which holds a 90 percent stake in the renamed HMX Group. London-based investment firm Emerisque Brands owns a minority interest.

Meanwhile, HMX bankruptcy counsel will be in front of Manhattan Bankruptcy Court Judge Allan L. Gropper today to finalize first-day orders and obtain permission to continue with day-to-day operations.
post #13 of 16
Quote:
Originally Posted by TonyThe Tailor View Post

He said Hickey Freeman and Hart Schaffner Marx appeal primarily to men over 35. “But we’re really good at social media and the celebrity end and we will focus on making them more hipster.

baldy[1].gif

post #14 of 16
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post #15 of 16

Maybe he meant to say "hip?" Yeah, that's probably it. uhoh.gif

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