IHFC Sale Complete

May 2, 2011  by in UnCategorized   

By Home Furnishings Business in Acquisition on May 3, 2011 The sale of High Point's International Home Furnishings Center is complete.

Bassett Furniture Inds. (Nasdaq:BSET) announced today the total value of the deal was $275 million which includes $175 million in contemplated cash proceeds for Bassett and its partners, and the assumption of $100 million of existing IHFC debt by the acquirer.

After set-aside escrows for an ongoing tax audit of IHFC and representations and warranties, legal fees and other transaction costs, Bassett realized a pre-tax distribution of approximately $74 million from the sale.

In the transaction, Bassett invested $2.4 million in return for a minority stake in the newly formed company, International Market Centers, L. P. (IMC). IMC's initial portfolio of assets consists of a total of 13 buildings encompassing more than 10 million gross square feet, including the IHFC and the Market Square Complex in High Point as well as all of the World Market Center buildings in Las Vegas. This platform constitutes the world's largest network of premium business-to-business home furnishings, gift, and home décor showroom space.

IMC is majority owned by funds managed by Bain Capital Partners and a subsidiary of certain investment funds managed by Oaktree Capital Management, L.P. Joining Bassett as investors in IMC are the Related Companies and affiliates of Network World Market Center.

Bassett made an investment in the IHFC more than 25 years ago. That investment has paid off over the years, primarily in the form of IHFC dividends that were paid to its shareholders.

"This transaction represents a successful conclusion to that investment and is a testimony to the sound management practices employed by the IHFC leadership and its associates, especially in a difficult period for the home furnishings industry," said Robert H. Spilman Jr., Bassett president and CEO. "Despite the fact that most of its competitors were in financial disarray, the IHFC has remained profitable throughout the recession. On behalf of Bassett and its partners, I thank current and former IHFC management and associates for a job well done. I feel confident that as part of the newly formed International Market Centers, L.P. that the IHFC will carry on its long standing tradition as the world's most successful home furnishings wholesale showroom entity."

Bassett plans to adopt a series of strategies in utilizing the proceeds from the transaction designed to improve financial performance and enhance shareholder value. Management has considered and will continue to evaluate a number of options that can benefit the company and its shareholders.

"The IHFC has provided us with a unique ability to positively impact Bassett's future. Most of all, our board of directors and management acknowledge the responsibility we have to be good stewards of these funds and firmly believe that we should be measured in our deliberations in regards to our use of these liquid assets," Spilman said.

In the short term, a portion of the funds will be used to settle selected ongoing obligations pertaining to closed store real estate in cases where these actions will result in substantial cash savings for the company. Similarly, Bassett will seek to reduce or eliminate other various debts that are subject to interest rates that are unfavorable in today's rate environment and can provide additional opportunities to improve ongoing cash flow. In considering potential scenarios for the allocation of this capital, Bassett has engaged financial advisors and also received input from many of its shareholders.

Regarding future investments in operations and growth, Bassett plans to invest cautiously in the opening of two or three stores over the next several months. Since its inception in late 2007, the company's new store prototype has performed significantly better than its original store format.

"Because of the economic recession and capital restraints, we have been conservative with new store openings," Spilman said. "Furthermore, bank financing for most U.S. furniture companies is limited to nonexistent in today's environment. To date, we have opened seven of the new prototype and have converted a similar number of our old ones. Accordingly, we will continue to analyze the return generated by our new store prototype on a location by location basis until we are satisfied that a larger number of openings is justified and can be internally financed. We have learned a lot about operating our stores through these very tough past several years. And we are also very excited by a new smaller version of our store and the increased sales per square foot and the greater returns that it is generating. We know that our updated design center staffed with the right personnel provides a much better presentation of our custom furniture capabilities, thereby offering a shopping experience that is truly unique at our price point anywhere in our industry."

The company's statement went on to say that the past few years at Bassett have been characterized by the recession-related stress that severely compromised many of its licensees' ability to pay Bassett for the furniture shipped to them. As a result, many stores have been closed or moved into Bassett's corporate network. This has been an expensive but necessary process that is ongoing today. An analysis of remaining locations will identify performance potential and the capital upgrades necessary to reach that potential will be undertaken over the next few months. To date these retro-fits have consumed about $300,000 to $600,000 per updated location.

Once again, as a result of the IHFC transaction, Bassett's board has discussed the merits of various mechanisms of returning capital to shareholders. One such vehicle, a stock buy back program, has been considered as part of these discussions. Although no short term targeted amounts of stock repurchase have been established to date, the company's total share repurchase authorization currently stands at $23.3 million. Bassett plans to purchase shares on the open market in the coming months when the price of the stock provides economic justification in relation to the intrinsic value of the enterprise.

Finally, Bassett's Board of Directors today declared a quarterly dividend of $0.03 per share for the second quarter of 2011. The dividend will be paid on June 1, 2011 to shareholders of record at May 16, 2011. After paying an uninterrupted dividend for over seven decades, the company's dividend was suspended in January 2009 at the height of the recession.

"It is gratifying to be able to reinstate a quarterly dividend, even at a more modest rate, after the suspension of our long standing dividend over two years ago," Spilman said.