8-K: Big Lots Secures Deal with Gordon Brothers and Variety Wholesalers Amidst Bankruptcy Proceedings, Nexus Agreement Terminated

Big Lots has reached an agreement with Gordon Brothers and Variety Wholesalers to transfer assets, including stores and distribution centers, while terminating its previous agreement with Nexus Capital Management and preparing for going-out-of-business sales.

Summary

• Big Lots has entered into an Asset Purchase Agreement with Gordon Brothers Retail Partners, which will facilitate the transfer of Big Lots assets to other retailers, including Variety Wholesalers.
• Variety Wholesalers intends to acquire between 200 and 400 Big Lots stores and up to two distribution centers, which they plan to operate under the Big Lots brand.
• The previous Asset Purchase Agreement with Nexus Capital Management has been terminated, with Nexus requesting a $1,500,000 expense reimbursement.
• Big Lots is preparing to commence going-out-of-business sales at all remaining store locations to protect the value of its estate.
• The company is still seeking a going concern transaction, with a goal to complete a sale by early January.
• The agreement with Gordon Brothers is subject to approval by the Bankruptcy Court and other customary closing conditions.
• Big Lots filed for Chapter 11 bankruptcy on September 9, 2024.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the termination of the Nexus agreement, the commencement of going-out-of-business sales, and the overall uncertainty surrounding the company's future. While there is a potential for a going concern transaction, the risks and challenges are significant.

Positives

• The agreement with Gordon Brothers and Variety Wholesalers provides a path for the Big Lots brand to continue operating.
• Variety Wholesalers intends to retain a significant number of Big Lots stores and potentially some employees.
• The transaction aims to preserve jobs and maximize value for the estate.
• The company is still pursuing a going concern transaction, which could lead to a more favorable outcome than liquidation.

Negatives

• The termination of the Nexus agreement indicates a setback in the initial restructuring plan.
• The commencement of going-out-of-business sales suggests a potential liquidation of remaining assets if a going concern transaction is not completed.
• The company expects that holders of the company's common shares will experience a complete loss on their investment.
• The company is operating under Chapter 11 bankruptcy, which introduces significant uncertainty and risks.

Risks

• The company's ability to continue as a going concern is uncertain.
• The sale of the business is subject to Bankruptcy Court approval and other conditions.
• There is a risk that the company may not obtain an adequate price for its assets.
• The company faces risks associated with third-party motions in the Chapter 11 Cases.
• The Chapter 11 Cases could have adverse effects on the company's liquidity and results of operations.
• There is a risk of employee attrition and difficulty retaining key personnel.
• The company's common shares are likely to be cancelled in the Chapter 11 Cases.
• The company faces potential material adverse effects from claims that are not discharged in the Chapter 11 Cases.

Future Outlook

Big Lots is still pursuing a going concern transaction with a goal to complete a sale by early January, while also preparing for going-out-of-business sales at all remaining stores.

Management Comments

• Bruce Thorn, Big Lots President and Chief Executive Officer, stated that the sale to Gordon Brothers and transfer to Variety Wholesalers is a favorable achievement.
• Rick Edwards, Gordon Brothers Retail Partners Head of North America Retail, expressed pleasure in reaching the agreement with Big Lots and partnering with Variety Wholesalers.
• Lisa Seigies, Variety Wholesalers President and CEO, stated excitement in partnering with Gordon Brothers to provide a path forward for the Big Lots brand.

Industry Context

The announcement reflects the challenges faced by brick-and-mortar retailers in a competitive market, with Big Lots seeking to restructure through bankruptcy proceedings. The involvement of Gordon Brothers, known for retail liquidations, and Variety Wholesalers, a regional discount retailer, highlights the complex dynamics of the retail sector.

Comparison to Industry Standards

• The situation is similar to other retailers that have faced financial difficulties and entered Chapter 11 bankruptcy, such as Toys 'R' Us and Sears, which also underwent asset sales and store closures.
• The involvement of Gordon Brothers is typical in distressed retail situations, as they specialize in managing asset sales and liquidations.
• Variety Wholesalers' acquisition of a portion of Big Lots' stores is a common strategy for regional retailers to expand their footprint and market share.
• The termination of the Nexus agreement and the subsequent move towards going-out-of-business sales is a sign of the challenges in securing a viable going concern transaction, which is a common risk in retail bankruptcies.

Stakeholder Impact

• Shareholders are expected to experience a complete loss on their investment.
• Employees face uncertainty regarding job security, although Variety Wholesalers may employ some associates.
• Customers may experience store closures and going-out-of-business sales.
• Suppliers and creditors face risks associated with the bankruptcy proceedings.

Next Steps

• Big Lots will seek Bankruptcy Court approval for the Gordon Brothers Purchase Agreement.
• Variety Wholesalers will begin the process of acquiring and operating the selected Big Lots stores.
• Big Lots will commence going-out-of-business sales at remaining store locations.
• The company will continue to pursue a going concern transaction with a goal to complete a sale by early January.

Key Dates

Keywords

bankruptcy, asset purchase agreement, going concern, liquidation, retail, Gordon Brothers, Variety Wholesalers, Nexus Capital Management, Chapter 11, store closures