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Unless another party makes a lucrative counter bid by a May 21 bankruptcy court sale hearing, Gemini Industries could add Recoton's CE accessories business to its own lineup.
Gemini Industries has agreed to pay $50 million in cash to Recoton for all of the assets of the bankrupt company's accessories business.
This dollar figure, a number reached by Gemini and Recoton under terms of a mutual Asset Purchase Agreement, has been filed with the U.S. Bankruptcy Court for the Southern District of New York. The purchase price is subject to adjustment.
Amid swirling rumors about which consumer electronics company might step up to make a bid for all or part of bankrupt Recoton, Gemini Industries has become the first and only bidder so far.
Gemini, last month, announced it had reached agreement with Recoton to acquire the accessories portion of Recoton's operation. Recoton had filed for Chapter 11 protection in early April, and must auction off its business properties and all related assets.
Gemini has also entered into discussion with Bob Borchardt, Recoton's chairman/CEO, regarding the possibility of Borchardt becoming an officer or consultant to Gemini, according to the filing. These discussions, so far, have been labeled "preliminary in nature and content," by the court documents.
As a result of this discussion, Borchardt has not been involved, in any way, in negotiations between Gemini and Recoton, concerning the Asset Purchase Agreement, said the documents.
Gemini, which might end up the only bidder for Recoton's accessories business, could also receive some purchase competition, since Recoton will consider higher and better offers from other companies that qualify under the Asset Purchase Agreement. All additional bids must be submitted no later than May 16.
Gemini already has paid Recoton a $2 million deposit for the right to bid. Any further qualified bidders also will have to pay this amount.
To submit an acceptable bid that does not piggyback on Gemini's due diligence effort, a qualified alternative buyer would have to top Gemini's offer by more than $3 million, including at least the amount of a $1.5 million termination fee, expense reimbursement and an additional $1.5 million.
The proposed transaction includes Recoton's Jensen, Acoustic Research, Advent, Discwasher and Ambico branded accessories. It does not take in the Jensen, Acoustic Research and Advent audio products.
"We highly value the Recoton accessories business because it is so complementary to our current business, enhancing Gemini's existing business in a number of key areas," said Gemini president/CEO Michael O'Neal.
"In particular, the acquisition will establish Gemini as a global leader in its market, provide access to new customers to diversify our retail distribution and expand our product portfolio through the addition of new brands, categories and technologies.
Gemini, which acquired Zenith's accessories business in July of 2001, will create what it calls one of the largest manufacturers and distributors of consumer electronics accessories in the world, by adding to Recoton's brands its own Philips, Zenith, Magnavox, Southwestern Bell and For Dummies brands.
With its increased size and scale, Gemini said it will be positioned to serve the needs of the large national and international retail chains that comprise the largest and fastest growing channel for distribution of CE accessories.
"This acquisition is a significant next step in Gemini's long-term growth strategy," continued O'Neal, who was named Gemini president/CEO in July of 2000. He had been chief operating officer. "Over the past two years, we have leveraged Gemini's historic service strengths and introduced new merchandising strategies, brands and product offerings to expand our business base and increase revenue and profitability."
In support of the Recoton transaction and Gemini's growth plan, Gemini has raised new funding from Boston-based Parthenon Capital, a $1.1 billion private equity firm.
Gemini is a privately held company founded in 1964. Known as a leading distributor of accessories products that connect and integrate CE and communications components and devices, the company sells over 1,800 products comprising a full assortment of CE accessories. These include headphones, antennas, A/V cables, surge protectors, telephone accessories and CD media products.
Recoton, which had been required by bankruptcy court to sell off its business properties and all related assets, will use the proceeds to reduce outstanding debt, which totaled about $235 million in long-term obligations last year.
Recoton, which noted assets of $223.6 million and liabilities of $234.6 million in its bankruptcy filing, said it currently employs 350 people, with only its CE accessories and audio businesses remaining after sale of its computer and video gaming products segment at the end of 2002 and earlier this year.