THE winning bid to purchase the distressed assets of Arctic Glacier Income Fund by H.I.G. Capital was finally disclosed this week -- a jaw-dropping $434.5 million.
It's a surprisingly large sum for a company that was scuffling under onerous debt, legal uncertainties and slumping sales for the past three years that finally led it to file for bankruptcy protection in February.
"I'm speechless," one banker familiar with the company said when he heard details of the transaction.
The deal, set to close at the end of July, also seems like it will give long suffering Arctic unitholders one last kick at the can.
H.I.G.'s purchase price will mean Arctic's secured lenders and most of the unsecured lenders will be paid in full, and moreover, the company is saying there may be distributions to unitholders.
One banker, who asked that his name not be used, suggested distribution could be as high as 25 cents a unit. There are about 350 million units outstanding.
As previously disclosed, on closing, all of the employees of Arctic Glacier will be offered employment and the company's head office will remain in Winnipeg.
One longtime unitholder said the deal looks to be good for the company, employees and the city. "As for original shareholders, it's nice to see (that there may be a cash distribution), but it's small solace."
Five years ago, Arctic units were trading at $14.
Although the price of the transaction was not publicly disclosed until Thursday evening, trading in the over-the-counter market picked up in earnest on Wednesday afternoon, with the price jumping from four cents to 17 cents by the end of the day on Wednesday.
Extremely high trading volume -- more than 20 million shares traded Friday -- continued Thursday and Friday.
The deal to purchase the assets by Miami-based H.I.G., a $10-billion fund, will strip out all of the last three years of grief and misery the company was subjected to, primarily because of an antitrust investigation in the United States and exacerbated by a recession and a couple of years of unseasonably cool weather in its peak sales periods during the summer months.
At a presentation to bankers in New York Thursday, Arctic CEO Keith McMahon said the antitrust debacle ended up costing the company about $110 million, including $40 million in legal fees and settlement costs, $40 million in additional financing costs (that it would not have had to bear if the company weren't operating under a cloud of uncertainty) and another $30 million in costs related to a protracted attempt to sell the company.
"That's $110 million of debts and obligations that had nothing to do with the operation of an ice company," McMahon said.
The new buyer has discovered about $21 million in cost savings it expects to take out of the company over the next three years. They include things like more automated warehousing operations, fine-tuning distribution routes, improving financial systems and greater centralization.
One observer said, "Management has been so distracted for the past three years dealing with its legal issues that many of these operational issues were not being dealt with."
The purchase price comes to about eight times cash flow or EBITDA (earnings before interest taxes, depreciation and amortization).
At the bankers' presentation in New York -- which was held to showcase the new Arctic Glacier in an effort to raise $200 million in senior debt -- an official from H.I.G. said it paid a lower multiple than the new backers of Reddy Ice, the Dallas ice company that also just emerged from bankruptcy protection.
The H.I.G. official said it's been looking closely at Arctic Glacier for three years and believes it can be profitable.