This past week a complex and long auction process was completed and a winning bid has been chosen to purchase the bankrupt Family Christian Stores (FCS). If this final bid is approved by the court the FCS will emerge from bankruptcy and resume business as usual.
If you have been following this ordeal (our blog #1 and blog #2) you know how complicated it had become. The end game is no less complicated. What follows is an attempt to review the salient points to further your understanding and the implications for the Christian bookstore industry. To do this I read all 216 pages of the court documents related to final auction bids. My ophthalmologist thanked me for the effort.
The Winning Bid
The 266 store chain (operating in 36 states) declared bankruptcy in February and the company was put up for sale.
As of last Wednesday there is a proposed winning bid for between $42 million and $43.6 million, but it hasn’t been approved by the court. The winning bidder is a company called FC Acquisition (FC stands for Family Christian) and is controlled by Richard Jackson who also controls the non-profit company that owned Family Christian Stores.
Elements of the proposed winning bid include:
- Stores will stay open
- Trade creditors will get 5% of what they are owed plus 100% for all of the sales made within 20 days of the bankruptcy filing.
- Owners of consignment inventory will get paid for a percentage of their inventory, somewhere between 10-35%, depending on circumstances.
- The main secured creditor will get paid 100%.
- Another secured creditor will take a large write-off.
The winning bid is being contested by the second place bidder in court, which could delay final approval. This second place bid would liquidate the inventory and close all the stores.
Who is Getting Paid? (If the proposed winning bid is approved)
As mentioned, a major secured creditor will be made whole.
Also trade creditors (publishers/vendors) will receive 5% of what they are owed for sales made before the 20 day cut off. In other words if a publisher/vendor is owed $50,000 they will receive a check for $2,500 and that is it. The other 95% will be written off. For example, if a $20 retail priced book was sold to FCS at a net (cost) value of $10, the publisher who sold the book to FCS will receive 50 cents. The other $9.50 is lost.
Authors may or may not receive royalties on their sold products. Much will depend on the contract they have with their publisher. Some have a high discount threshold where sales over a certain percentage off retail either receive half royalty or zero royalty. This is complicated by one of the parts of this bid… if the trade creditor (publisher/vendor) receives payment for goods shipped within 20 days of the bankruptcy, the publisher will have to determine if that payment can be identified as originating with a specific product, and if the author’s contract accounts for it, the artist or author will receive royalties. Otherwise, no royalties will be paid.
With any situation like this there is good and bad. The bad is rather obvious. A lot of publishers and vendors are severely hurt by this bankruptcy.
The good, if you will allow me to characterize it as such, is that if the bid is approved by the courts, the stores will stay open. That means future business will occur. In the long run, this may be a wonderful thing. Whether FCS can survive in that long run amidst the ever changing nature of retail is a different question entirely. This situation has demonstrated the fragile nature of the brick-and-mortar store. Unless some changes are made we may end up in the same boat a few years from now. But, in the meantime, having 266 places where books, bibles, music, and gifts are sold is a positive thing.
Unfortunately that “good” thing had to be rebuilt on the backs of hundreds of publishers, vendors, suppliers, authors, and artists. Many of whom will not have the ability to survive their own bankruptcy.
It is easy to create villains and heroes in any story we tell. Rarely, in a situation like this, do we know the full picture, the motivations, or what has been negotiated behind the scenes. My hope is that somehow something good in the long run will happen to turn this into a long forgotten bad dream.