Third Potential Buyer Joins Fingerhut Pursuit

Three potential buyers have been identified for Fingerhut, though time appears short as parent company Federated Department Stores reportedly has begun layoff plans as part of steps to close the business.

Carol Sanger, vice president of corporate affairs at Federated, would only qualify the number of inquiries as “several.”

“The process to wind down the Fingerhut operations is under way,” she said. “There is nothing that is being done in that regard that is irreversible should a buyer be identified. If a serious buyer emerges, we won't shut down the process.”

Some employees of Fingerhut, Minnetonka, MN, reportedly were informed last week that they could be unemployed in 60 days. The notices coincide with the company's final catalog being mailed. Those taking orders are expected to be among the first to be let go. In addition, The Star Tribune of Minneapolis reported that a significant number of the company's 6,000 core catalog workers have been sent federally mandated Worker Adjustment and Retraining Notification Act notices.

Fingerhut spokesman Ben Saukko told the Star Tribune that if Fingerhut's operations are closed, it would need 800 to 1,000 people through the middle of the year, with that number falling to 400 by August and 200 by the end of January 2003. Layoffs could begin March 24.

A member of one of the groups interested in buying Fingerhut said the company could become profitable and look toward growing within 18 months to two years, though a deal would have to be struck soon.

“If you don't continue to follow through on the model — including mailings, providing product and having sufficient inventory — your business can disintegrate very quickly,” said Marshall Masko, a business partner with Peter Lytle and other investors in the Business Development Group, Wayzata, MN. “You don't want this to take six, eight, 10 or 12 months because that would be the kiss of death for this type of business.”

The Business Development Group has signed a confidentiality agreement and is conducting due diligence, Masko said, which could take several weeks.

Masko is former head of marketing at NordicTrack, Chaska, MN, and was senior vice president of marketing at Gateway Learning, San Francisco.

“Our group specializes in turnarounds, and we've done many in the past several years,” he said. “It's a great company that has served its customers very well over the years and competes in a category with very little competition because it affords credit to people who otherwise would be deemed not 'A-1 credit types' by department stores.”

When asked about a review of financial information and whether any surprises had been revealed, Masko said, “I can't get into that. We haven't seen the details of all the financials, but there are some things that were surprising for us.”

Masko would not say how much the group is willing to offer until there is a better understanding of Fingerhut's assets and liabilities.

“We're still trying to nail that down completely,” he said. “Our group is interested in the whole Fingerhut core catalog business. The way Federated has this organized, there are three catalog groups: the Fingerhut core catalogs that we are interested in purchasing; the Arizona [Mail Order] catalogs; and Figi's. We believe they are interested in spinning off Figi's and [the] Arizona [catalogs].”

Tom Petters, who counts business-to-business exchange RedTag Inc., Eden Prairie, MN, as one of his businesses, leads a second group of investors looking at buying Fingerhut. His spokeswoman, Mary Pernula, said RedTag has no connection to the attempted acquisition and the “number of investors is not finalized yet.”

“They feel it is a very viable company,” she said. “He is in a fact-finding mode and has had preliminary discussions. I don't have information on who he's been in contact with at this point.”

A third suitor is KPS Special Situations Fund, according to The Associated Press. UNITE Local 978 representing Fingerhut workers said it has been in discussions with KPS about acquiring the company. Jane Palmbach of Local 978 opposes a rapid liquidation.

“If they're not patient, we are prepared to fight to keep the Fingerhut jobs,” she told AP while warning that a public campaign against Federated could follow.

The AP also reported that a representative of an unnamed prospect was set to meet with mayor John Ellenbecker of St. Cloud, MN, where Fingerhut employs 2,700 in a distribution and processing facility.

State officials have initiated a search for tax dollars to stimulate a private purchase of Fingerhut, according to the Star Tribune. Ellenbecker, who said Petters asked him to identify possible sources of public funding, said the city has nothing to offer a potential buyer regarding a new subsidy.

“I'm cautiously optimistic a sale can happen,” Ellenbecker told the newspaper.

Rebecca Yanisch, commissioner of the Minnesota Department of Trade and Economic Development, said subsidizing a buyer might not be the best decision given the state's economic difficulties.

“If you have a couple of credible bidders, state incentives just line Federated's pockets,” Yanisch told the newspaper.

She said the state must consider whether a grant of $500,000 or $1 million would make much difference in “turning the corner” on a deal.

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