Brookstone Inc., the retailer of gadgets such as virtual keyboards and personal drones, filed for bankruptcy to pursue a $147 million sale to Spencer Spirit Holdings Inc. as online competitors cut into its business and consumers spend less on non-essentials.
Brookstone, which was taken private in 2005 by a group including Singapore’s Temasek Holdings Pte, will continue to operate with current employees and managers, according to a statement today. The Merrimack, New Hampshire-based company said its bondholders support the sale. Spencer, a novelty retailer, would pay $120 million in cash and $7.5 million in new notes and assume about $18.5 million in liabilities.
“This agreement will leverage the brand recognition and resources of our two companies,” Chief Executive Officer Jim Speltz said in the statement. “The retail industry continues to evolve and staying ahead of the curve is critical.”
Brookstone listed debt and assets of as much as $500 million each in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware. The company, known for products such as $4,600 massage chairs and $3,000 “Pac Man” arcade systems, was plagued by the same afflictions that sank Sharper Image Corp. in 2008.
Online merchants such as Amazon.com Inc. now offer products that once made the two companies the leaders in the hard-to-find item market, Robert A. Del Genio, managing member at turnaround and restructuring firm CDG Group LLC, said in a phone interview before the bankruptcy filing.
“Sharper Image and Brookstone were places that you went to for unique products. Now you can find it on the Web,” said Del Genio, whose firm managed Sharper Image in its bankruptcy, which ended in liquidation. “That was their niche.”
Brookstone’s sales fell 7.3 percent to $88.3 million in the quarter ended Sept. 28 from the same period a year earlier, resulting in a net loss of $18.1 million, the company said in a Nov. 5 statement.
As online competition increased, the recession made consumers more pragmatic, according to Del Genio. While Brookstone offered unique products, they were discretionary, he said. “People are more conscious about how they spend their money.”
Brookstone said in a court filing that it plans to expand its number of airport stores to 85 from 47 by the end of 2016. Airports accounted for almost half of the company’s profit last year, Brookstone said. Most of its 242 locations in the U.S. and Puerto Rico are in malls.
Spencer operates 644 stores in the U.S. and Canada selling novelty and pop-culture gifts. It also runs more than 1,000 seasonal Halloween stores under the Spirit brand.
Brookstone started as a catalog business in 1965, offering “hard-to-find tools” before opening its first store in 1973 in Peterborough, New Hampshire, according to its website.
The company went private nine years ago in a $422 million deal backed by Temasek, Singapore’s state-owned investment company, along with OSIM International Ltd. and JW Childs Associates LP. Singapore-based OSIM, Asia’s biggest maker of massage chairs, sells its products throughBrookstone stores.
“Brookstone is a well established iconic brand that has stood the test of time,” Spencer Chief Executive Officer Steven Silverstein said in today’s statement.
Brookstone’s $125 million of 13 percent callable bonds due Oct. 15 rose less than 1 cent to 54.688 cents on the dollar today according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Financial adviser Jefferies Group LLC and law firm K&L Gates LLP are helping Brookstone restructure its debt. The 30 largest unsecured creditors are owed about $4.7 million, according to court documents. Tempur-Pedic Inc. is the biggest, with a claim of $961,815.
The case is in re Brookstone Holdings Corp., 14-bk-10752, U.S. Bankruptcy Court, District of Delaware (Wilmington).
For more struggling companies, see Mergers & Acquisitions Distressed Company Watch List.