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Playing For Keeps: Court-Appointed Receiver Facilitated a Hostile Takeover

06.03.10

Situation:
BPM’s team, led by Consulting Partner Russ Burbank, was appointed Receiver by Order of the Superior Court of California for the County of Santa Clara, over a San Jose-based manufacturer of telecommunication equipment (hereafter referred to as “Target”) at the request of a competitor (hereafter referred to as “Acquirer”), who had acquired the Target’s secured debt.

Challenge:
After a failed leveraged buy-out by a private equity firm, the Target was left with more than $50 million of secured debt over an enterprise that was worth substantially less. The debt was held by a finance company that was under pressure to reduce its under-performing portfolio. This set up the opportunity for the Acquirer, who was the Target’s arch rival and competitor, to purchase the debt at a deep discount, and set the stage for a hostile takeover. After news of the debt being sold to the Acquirer reached the Target, the senior management of the Target released all employees, closed the company’s doors and began to look for a defense, which proved to be futile.

With the Target abandoned and its collateral assets supporting its debt left fully-exposed, the Acquirer moved swiftly to have a Receiver appointed by the Court. Beyond destruction of business property, IT security concerns and intellectual property exposure, the Acquirer was compelled to protect the most valued assets of the Target—its customer relationships.

Solution:
Within three business days, the BPM team had changed the locks, obtained commitments for “bridge” financing from the Acquirer, negotiated temporary employment contracts with almost every employee (nearly 100 contracts), took control of all incoming and outgoing communications, restored customer service, and had the production line fully-operational. With the restart of operations, the BPM team supervised production, sales, customer service, banking, payroll and security. These activities involved extensive communications with returning employees, customers, vendors, and representatives of the Target and Acquirer. Also, with the assistance of the BPM IT team, computer passwords were retrieved and servers and networks were secured.

Result:
Over the course of less than one week, asset value was maintained, risk minimized, cash flow maximized and business operations continued seamlessly. The Target’s assets were ultimately put up for bid in a public foreclosure auction and purchased by the Acquirer. Once the assets were transferred to the Acquirer, the Receivership was terminated. Noteworthy, on the last day of the Receivership, when the employment of the Target’s faithful employees was yet again terminated, BPM’s team received a warm round of applause for its professionalism and sensitivity to what could have otherwise been a very difficult situation, reflecting one of BPM’s most important core values: Because People Matter.