We were shocked to learn that LVI Print Optimization has filed for creditor protection. LVI formerly called LaVigne Inc. is a century old company known for its tech-savvy culture and investment in state of the art technology -- LVI is the poster child of evolving into the new communications firm many printers are striving to become.
The company posted a net loss of $950,000 on revenue of $4.7 million during the first eight months of the company's current fiscal year. As noted in the company's press release, the LVI expects to continue paying employee salaries and benefits as well as to continue to provide the same services to its clients through the restructuring process.
HubCast has offered to pay cash consideration of $1,385,0000, subject to offset by any amounts outstanding as of the closing date under certain debtor-in-possession financing being provided by HubCast, and to assume certain liabilities, including any liability for cure payments due to contract and lease counterparties upon assumption and assignment.
To try to decipher what went wrong we took a look at the bankruptcy filing of LaVigne (PDF) and largest unsecured claims (PDF) and discovered some interesting items:
LVI owes almost $1.8 Million to the largest unsecured claims; a mix of industry suppliers, insurance, and good and/or services. The company's largest unsecured claim is to INS LLC. The owner of the building LVI leases. Toby LaVigne is the sole shareholder of INS LLC. Other creditors include:
John Hancock Insurance, $202,617; Unisource Worldwide $167,352; xpedx $145,087; Berkshire-Westwood Graphics Group, $142,730; Key Equipment Finance, $170,899; Indigo America, $124,390; Lindenmeyr Munroe, $110,373; Kodak, $54,003.96.
The bankruptcy filing reveals:
- The assets to be purchased include accounts receivable, intellectual property, certain equipment, and shareholder notes due to LVI from insiders.
- Toby LaVigne is also an insider of LVI. Mr. LaVigne is LVI's majority shareholder and is chairman of the board of directors. Mr. LaVigne is also the sole shareholder of INS LLC, which owns the building in which LVI's headquarters are located and which LVI leases under the terms of a triple net lease calling for rent in the amount of $20,000 per month. Finally, Mr. LaVigne is an obligor under one of the shareholder notes due to LVI, and being acquired by HubCast in the proposed purchase.
- LVI anticipates that, if HubCast is ultimately determined to be the winning bidder, Christopher Wells, the president and CEO of LVI, will be offered employment in the post-closing acquisition entity.
- Any person who wishes to participate in the bidding process must become a “Qualifying Bidder.” As a prerequisite to becoming a Qualifying Bidder (and, thus, being able to conduct due diligence), a Potential Bidder: (a) must deliver an executed confidentiality agreement in form and substance acceptable to the Debtor no later than thirty (30) calendar days subsequent to the Petition Date; and (b) must be able, as determined by the Debtor, to consummate a transaction based upon the Asset Sale.
- The Debtor (LVI) has agreed to provide the Proposed Purchaser (HubCast) with a right to expense reimbursement of $75,000 to reimburse the Proposed Purchaser for out-of-pocket expenses in connection with the sale transaction.
- Under the terms of Mr. Ippolito's (LVI's investment banker) proposed engagement, a success fee of $125,000 will come due to Mr. Ippolito at closing, less prepayments made in periodic installments for which authority has also been sought.
- Due to liquidity constraints, Mr. McDermott (LVI's financial advisor) has agreed to defer a portion of his normal and customary fee until closing. Therefore, although it is anticipated that Mr. McDermott will devote forty (40) hours per week to the Debtor's operations and sale efforts during the post- petition period, which at his normal and customary rate would yield a fee of $12,000 per week, Mr. McDermott has agree to accept a flat rate of $6000 per week provided that he receive a payment of $50,000 from the closing proceeds.
WhatTheyThink editors are working on further analysis.
Discussion
By Rob Wainer on Jul 14, 2009
This firm has been held up to be the model of business that other printers should strive to create- Doesn't management know your outflow of money should equal your inflow ? Basic 101- Or perhaps the bankruptcy filing is being used to eliminate other inside shareholders and Lavigne will wind up as sole shareholder as his real goal?
By Lou Berceli on Jul 14, 2009
I am confused...isn't Toby Lavigne the Founder and CEO of HubCast, the same company who is planning to buy Toby Lavigne's LVI company that has just filed bankruptcy?
By Lou Berceli on Jul 14, 2009
This is a recent newspaper published article.
By Martin Luttrell TELEGRAM & GAZETTE STAFF
WORCESTER — A U.S. Bankruptcy Court judge cleared the way for the sale of printing company LaVigne Inc. during a hearing yesterday.
Judge Joel B. Rosenthal gave the company the green light to continue paying payroll and benefit expenses to the firm’s 35 employees, pending a July 29 hearing.
Last week LaVigne Inc., which operates a family printing business dating to 1898, filed for Chapter 11 bankruptcy protection and is seeking approval to sell the company’s assets to a business led by LaVigne’s chairman, Toby LaVigne. HubCast Inc. of Wakefield has offered to pay about $1.39 million in cash for LaVigne and assume certain LaVigne debts.
Under the proposed sale, LaVigne would pay $850,000 toward a $1.15 million claim by TD Banknorth that is secured by a lien.
HubCast’s founder, chief executive and minority shareholder is Toby LaVigne, according to the filing. Mr. LaVigne is also chairman and majority shareholder of LaVigne Inc., and he is sole shareholder of the entity that owns LaVigne’s building on Coppage Drive, the filing states.
The sale offer came after LaVigne Inc. hired an investment banker to find a buyer for LaVigne’s assets. The investment banker reviewed nine potential buyers before recommending HubCast, John J. Monaghan, lawyer for LaVigne, told the court yesterday.
“This deal is better to the unsecured creditors than liquidation,” Mr. Monaghan said. “… It is the intention of the debtor to have an open process.”
Mr. Monaghan told the court that there are three entities interested in bidding on the company.
Judge Rosenthal questioned why Mr. LaVigne did not arrange the sale of the company short of bankruptcy, as he is a principal in the debtor and potential buyer.
“This has elements that make some people complain bitterly about the system,” Judge Rosenthal said in ordering a creditors’ committee be set up to review the deal. A meeting for unsecured creditors has been set for 2:30 p.m. on Thursday in the U.S. Trustee’s meeting room on the first floor at 446 Main St., Worcester. At that time, a committee comprising unsecured creditors will be appointed to review the potential deal with HubCast and participate in the bankruptcy proceeding.
HubCast was referred to in yesterday’s hearing as a so-called “stalking horse,” a company of the debtor’s choosing that submits an initial bid on a bankrupt company. That allows the debtor to avoid low bids on its assets. Once the stalking horse has made a bid, other potential buyers can submit competing bids for the bankrupt company’s assets.
Following the hearing, LaVigne Chief Executive Christopher D. Wells referred questions to Mr. Monaghan.
“Today the court put the sale process in motion,” Mr. Monaghan said. “We can solicit other bids using an investment banker. The guy who offers the most at auction gets to buy the company.”
Stephen E. Mounier is the lawyer representing the U.S. Trustee in the case.
By Michael J on Jul 14, 2009
There is good news and bad news about family owned printing companies.
Back in the day, I heard of one printer who bought all the presses personally and leased them back to the company. That means he had a very low risk money machine, while the company struggled with the "debt."
Most of the printers I know who made a grateful exit did it with real estate, not because of printing. One of the reasons for the lack of investment in new productive investments in some print companies is not that Print is Dead, just the cash sometimes disappears in not a public corporation.
By Rick Ford on Jul 16, 2009
I call shenanigans! Where is the pain for Toby? He's getting paid off regardless of the outcome and the holders of the unsecured claims are getting the shaft. Toby LaVigne and Chris Wells have been dodging creditors and conducting bad faith business for years. The value of the debt written off by companies that have done business with this group is astronomical. I bid $1 with plans to help the hard working production staff find jobs, sell the equipment and default on the lease (to Toby).
By Kevin Kervick on Jul 20, 2009
There is a lot of trash talk here about Toby's motives (eliminate other inside shareholders, shenanigans, dodging creditors and conducting bad faith business for years). There are other ways to look at this.
1. Toby will get some of his personal debt paid back. This suggests that he put money into the company when times were tough. This is an honorable thing that many committed owners do. If Toby had let the company crash earlier by not loaning money in, would that make him a better person?
2. The largest unsecured creditor is Toby himself (rent on the building he leases to the print shop). Many owners hold the real estate outside of the operating company for very legitimate reasons (estate planning, liability, etc.) The fact that Toby has not been siphoning rent money while letting other bills go unpaid shows he is doing the "right thing" in a difficult situation.
3. Far from being a plan to "eliminate other inside shareholders", Toby's plan causes him to lose control of the business. Toby may be the founder of Hubcast, but he is no longer the majority owner. He gave up ownership in exchange for venture capital (VC) investment. If Hubcast acquires LVI, the VC guys (not Toby) will own the printshop. The real owners of Hubcast can send Toby packing at any time they feel he is not multiplying their money fast enough. In fact, I would imagine (pure speculation on my part) that if the LVI acquisition doesn't work out well for Hubcast, it may cause major problems for Toby with his VC backers. Owning printshop assets is not in Hubcast's business plan and the VC investors surely do not see it as their path to success.
4. Hubcast's offer does good things for the unsecured creditors. It makes sure that no one will swoop in and pick up the company for next to nothing. If no one outbids Hubcast, then Hubcast paid more than anyone else was willing. Sounds like a good deal for everyone else. If others are willing to pay more, then Hubcast helped realize that value by setting the floor price.
5. As far as the accusation of "dodging creditors for years...”, I am not involved in any way with LVI and I have no inside knowledge, but I have noticed that many print shops did quite poorly over the past decade. Many of us have not been able to pay vendors as quickly as we (or they) would have liked. Many have gone bankrupt. None of this indicates any "bad faith" on the part of those involved. Print is a capacity driven business. Overall, print markets are in a decline. The fallout is messy, but it doesn't mean that LVI set out to cheat anyone.
6. As I understand it from the news reports connected to the bankruptcy, LVI sales have fallen by about 40% over the past two years. This kind of decline is almost impossible to overcome without some kind of restructuring - usually bankruptcy. The current path is probably the only way the company can survive. If anyone feels the company is worth more than the offer from Hubcast, they are free to buy it. Any takers?
For the record, I am a competitor to LVI. It certainly shows how unfair the criticism has been when someone feels compelled to defend the competition!
Discussion
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