Cannondale goes to a creditor;
March 31, 2003
Filed under Features
Pegasus Partners II, LP, the largest secured creditor to the bankrupt Cannondale Corporation, is now unofficially the manufacturer’s new owner.
The auctions for the assets of Cannondale’s bicycle and motorsports divisions were conducted March 20 at the company’s Bethel, Conn., headquarters, where the entire business was purchased by Pegasus Partners, a unit of Pegasus Capital Advisors, LP. Based in Greenwich, Conn., Pegasus Capital is a private equity investment firm with about $800 million under management.
Cannondale filed a voluntary petition for Chapter 11 protection in the U.S. Bankruptcy Court, District of Connecticut, on January 29, 2003, with $114 million in assets and $105 million in debts.
The terms of the winning bids were not disclosed and are subject to the approval of the Bankruptcy Court. However, Powersports Business learned Pegasus agreed to purchase the bicycle assets for $55 million and simultaneously retain the motorsports assets. The asking price for the bicycle division was originally $57.2 million and the asking price for the motorsports division was $2.8 million.
Bankruptcy Court Judge Alan H. W. Shiff is expected to officially close the deal some time in late April.
Pegasus agreed in late January to act as the “stalking horse” bidder in the auction and put up an initial $25 million bid on Cannondale's assets. At that time, Pegasus said it was committed to working with current management and operating the bicycle business as a going concern. As of March 20, Pegasus has indicated that it does not intend to operate the motorsports division.
“There was not an acceptable bid in the auction on the motorsports, so it’s still to be determined where that is ultimately going to go,” Scott Montgomery, Cannondale’s vice president of marketing, told Powersports Business. “The bicycle company is going to be run as a going concern, but it will be up to Pegasus to determine what will be done with the motorsports.”
Besides its Connecticut and Pennsylvania locations, Cannondale also operates subsidiaries in Europe, Japan and Australia. Although included in the sale, the subsidiaries had not been included in by the Chapter 11 filing.
What will become of the shareholders, employees and creditors?
“The shareholders are wiped out, myself and my father included,” Montgomery said. “As for the vendors, there also was a creditor’s settlement. There are some priority issues to work out, so I don’t know what the total recovery per claim will be, but it will likely be very small.”
Elizabeth Fox of Fox Racing Shox, chairperson of the Official Committee of Unsecured Creditors, said the creditors reached a favorable agreement with Pegasus and fully support the sale.
“This is a huge step toward successfully realizing our three key objectives: ensuring a quick emergence from Chapter 11, restoring focus and adding resources to the bike division so it can continue to thrive and prosper, and preserving our employees’ jobs in Connecticut and Pennsylvania,” said Joe Montgomery, Cannondale’s founder. “Our dealers, suppliers, customers and employees have really stood by us, and we’re extremely grateful.”
“Cannondale is one of the world’s premium bicycle brands,” David Uri, a partner at Pegasus, said in explaining the bid. “The fact that the bike division has remained profitable despite the distraction and costs of its now closed motorsports business clearly demonstrates the strength of the brand. Our job now is to let Cannondale concentrate on what Cannondale does best – designing, manufacturing and marketing lightweight, high-performance bicycles for the specialty retail market.”
Cannondale workers ended a temporary work furlough in early March and returned to the company’s Bedford, Penn., bike factory to resume production of bicycles and cycling accessories.
“The next formal step will be the actual closing with Pegasus, which is probably going to happen by the end of April,” Scott Montgomery said. “And that would be when Cannondale would officially reemerge from Chapter 11 as a privately traded company.”