American Greetings Finishes Debt Play

American Greetings will buy Recycled Paper Greetings which filed for Chapter 11 bankruptcy in Delaware.

American Greetings will buy Recycled Paper Greetings which filed for Chapter 11 bankruptcy in Delaware, becoming one of the new year's first large corporate casualties.

The Chicago company, which also is known as Recycled Paper Products and RPG Acquisition Corp., has 10,000 to 25,000 creditors. Its assets and liabilities total between $100 million and $500 million.

Founded in 1971, RPG is the third largest greeting card company in the US after American Greetings and Hallmark.

Debtor counsel are Weil, Gotshal & Manges and Mark Collins of Richards, Layton & Finger PA. Rothschild Inc is providing the debtor with financial and restructuring advice. The largest unsecured creditors are Target, Walgreen Co., American Greetings and Fedex whose claims are all in the form of trade debt.

According to court documents, RPG has not met its financial projections, and since April 2008 has been in default of its secured debt obligations. In court filings it blames the nation's broader economic downturn on its poor sales.

RPG said in court documents it hopes to get a $10 million DIP lined up to cover pre-petition professional fees and for immediate operational needs. American Greetings will provide the $10 million DIP. Credit Suisse is the DIP's administrative agent.

"The acquisition of Recycled Paper Greetings will be an excellent addition to our current product offering. This transaction will give American Greetings an enlarged product design capability and a compelling product offering that is expected to delight consumers and enhance productivity for our retail partners," Zev Weiss, chief executive of American Greetings said in a prepared statement.

Imperial Capital and Jones Day advised American Greetings on the transaction.

RPG Investment Holdings and funds affiliated with Monitor Clipper Partners, LLC issued a statement last week condemning American Greeting's actions leading to its planned acquisition of Recycled Paper Greetings. Receylced Paper Greetings is a RPG Investment Holdings company. Monitor Clipper is a controlling investor in RPG Investment Holdings. 

"We strongly oppose the actions taken by American Greetings leading to the filing today of the bankruptcy," Travis Metz, RPG Investment Holdings director and a partner of Monitor Clipper, said in a prepared statement. "American Greetings is attempting to eliminate Recycled Paper Greetings as a competitor in an effort to gain more widespread traction in the lucrative market segment in which Recycled Paper Greetings excels."

RPG Investment Holdings said in the statement that it has taken several actions, including pursuing litigation in the US District Court in Chicago.

American Greeting Card, had, according to one source, sought to buy its competitor at least as early as last year, but was rebuffed. Last fall, Recycled Paper Greetings saw some of its senior secured debt sold to the larger, eventual buyer, and it promptly filed suit alleging American Greeting in turn used the information it got from its debt buy to gain a competitive edge.

Recycled Paper Greetings chief executive Jude Rake alleged at the time that his competitor's "actions represent a clear violation of a written confidentiality agreement" that was "predatory in nature and intended for the sole purpose of preventing us from conducting business on a fair playing field."

At the time, one industry expert familiar with the situation called the lawsuit "smoke and mirrors" to draw attention from other issues at Recycled Paper. The merger would serve to validate that statement.-AR

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