Dealers sweat it out in Genmar limbo


Jacobs resigns from the company he founded, but some are convinced he'll be back at the helm


The future of Genmar Holdings and the 15 boat lines it produces remains in flux with the recent announcement the company was pursuing a sales process rather than a reorganization as a means to exit Chapter 11 bankruptcy.

And, on the heels of that announcement, Irwin Jacobs revealed he was stepping down as chairman, CEO and a director of Genmar to focus on his plans to be the highest bidder for the company he founded more than 30 years ago.

"I'm keeping all of my options open; everyone will just have to wait and see what the outcome is," Jacobs says. "I've stepped aside. I resigned from the board so that I'm free to do whatever I want to do. Otherwise it would obviously be a conflict."

He says he plans to bid on "primarily the company" as a whole, though no other potential bidders have made their plans public. "I tried to do the reorganization and couldn't get the cooperation of everybody necessary with which to do it," Jacobs says. "I was going down that path and, frankly, had what I thought was, in place, a transaction to do it. But there were people who weren't cooperating with it, so I had to go in a different direction."

On Nov. 4, a bankruptcy court judge in Minnesota approved Genmar's motion to enter into an exclusivity and expense agreement with a potential "stalking horse." Genmar has identified the potential stalking horse as the "party that has submitted the best offer to date from the standpoint of cash consideration and probability of consummation." It does not, however, name that party in order to "preserve the integrity of the sale process."

Mark Sheffert, chairman and CEO of Manchester Companies, which is serving as Genmar's chief restructuring officer during its Chapter 11 proceedings, says the unnamed bidder is not affiliated with Jacobs or Genmar.

Jacobs says he is not concerned about other potential bidders.

"Given the circumstances surrounding Genmar as it moves forward in the sale of the company's businesses and non-core assets in the bankruptcy process, and in light of Mr. Jacobs' public comments regarding his desire to participate as the 'highest bidder' in the auction process, this decision was made in the best interest of the constituents," Sheffert says of Jacobs' decision to step down as head of the company.

"This separation will allow for Mr. Jacobs to pursue objectives he may have relative to Genmar's asset sale process in an effective and independent manner and eliminates potential conflicts of interest," he adds.

New York-based bankruptcy attorney Leonard Bellavia of Bellavia Gentile & Associates says it's not unusual in this economic climate for Chapter 11 reorganizations to result in straight liquidations, though it would be uncommon for a current officer or shareholder to bid on his own company in a bankruptcy sale.

"These types of sales place the shareholder in a difficult position because, as the president of the company and a fiduciary for the creditors, he has a duty to maximize the value of any sale," Bellavia says. "On the other hand, as a bidder he wants to pay the least amount of money for the assets. Because of this conflict, the bankruptcy courts closely scrutinize sales to 'insiders' to make sure there is no self-dealing."

Court documents say the stalking horse will have this exclusivity period for 20 days, and Genmar has been authorized to reimburse this party up to $700,000 for "certain due diligence expenses under specific circumstances." The court also approved Genmar's request to enter into a "fourth amendment" agreement with its secured lenders to pay the reimbursement obligations.

As of mid-November, no further information was available on the potential sale or a sale price.

In a filing unrelated to a potential sale, the court in November also approved an extension in which Genmar has the exclusive rights to file plans of reorganization through Jan. 31 and extended the period in which the company has the exclusive right to obtain acceptance of such plans through April 1.

From reorganization to sale

Court documents show that Genmar enlisted the help of investment banker Houlihan, Lokey, Howard & Zukin Capital several months ago, and in August, Houlihan contacted approximately 200 potential purchasers. A memorandum was distributed to more than 80 potential purchasers, and due diligence conference calls and in-person meetings took place with two dozen potential purchasers.

Around Sept. 28, 12 bids to purchase some or all of Genmar's assets were submitted, and Houlihan entered into negotiations with the leading bidders (chosen by Genmar with the advice of Houlihan), court documents show.

While the decision to sell took some by surprise, others in the industry say they expected this course of action. Marine Retailers Association of America president Phil Keeter says most of the dealers he has heard from "thought [Jacobs] was going to do this all along. One dealer said to me, '[Jacobs] came into this industry as a raider, and that's what he is right now.' "

Keeter says many dealers are concerned about what this latest twist means for the Genmar brands they carry, their ability to get warranty claims paid, and their standing going into the winter boat show season. As of the June Chapter 11 filing, the company said it had more than 1,000 dealers worldwide.

"The sale is only good news for dealers if Jacobs, or any successful bidder, retains all of the dealers," says attorney Bellavia, who worked with the MRAA in its unsuccessful attempt to form a dealers committee for the Genmar case.

Jacobs says he is sympathetic to the dealers' position. "When things are in flux, so to speak, or are uncertain, everybody's always concerned," he says. "The known is always better than the unknown, but these are things that are beyond my control in some cases. I have to do the best that I can, and I'm trying to be as revealing as I can."

Genmar president Roger Cloutier, in a letter dated Nov. 9, says the direction of Genmar should be clearer in the coming weeks.

"In the meantime, we continue to build boats based on a good backlog of orders and to support our dealers as best as possible," he says. "We believe that the direction of Genmar will be clearer in the next few weeks, allowing all of us to appropriately prepare or the upcoming 2010 boat selling season."

Support for the plan

The Unsecured Creditors Committee, which represents about 4,000 parties, says it will "support a process that will result in the sale of the Genmar assets to either one or multiple buyers."

"The committee's investigation and evaluation have led it to conclude that supporting various reorganization proposals that were discussed with the committee would not be in the best interests of the unsecured creditors as a whole," the committee says. "The committee believes that bringing this sale process to a speedy conclusion in order to meet the requirements of the early 2010 boat shows will be an important element of that effort."

Committee chairman Gary Potter, president of EZ Loader Boat Trailers, says it is not known how much money the unsecured creditors could expect to receive after the sale. "It all depends on what the market value of the entities are," he says. "The only way we know that is based on the bids that come in. A company that may have had a net worth of $10, if the bid comes in at $3 that's what it's worth, but it may come in also at $15."

The committee says in its statement that it believes it is "reasonable to expect" the sales process will result in a total sale price that exceeds the initial bid price.

This article originally appeared in the December 2009 issue.


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