A couple years ago, my law firm represented a Chinese creditor in a United States bankruptcy. This Chinese company had for many years made figurines for the large U.S. company that was now in bankruptcy. These figurines cost very little to make (in China), but they had a big following in the United States where they sold at retail for well over ten times their production costs.
When the United States company went bankrupt, one of our jobs as lawyers for the Chinese company was to look into purchasing the trademark and other intellectual property for the figurines. We eventually succeeded at this and the Chinese company is now the proud owner of all the makings necessary for a vertically integrated figurine company, and at a price way under it would have needed to have spent for such assets outside of bankruptcy.
In my firm’s experience in dealing with Chinese companies seeking to buy American companies, the Chinese company is usually primarily interested in acquiring the brand name, but virtually always fails to do so because it is just not willing to pay what is required. Put simply, American companies generally put a higher premium on American brands than do Chinese companies.
But here’s where these purchases could get interesting. The Chinese government has been telling Chinese manufacturers for years that they need to start developing worldwide brands, but for the most part, Chinese manufacturers have not been doing this. One of the reasons is because they either do not have or are unwilling to spend the funds necessary to acquire or achieve a worldwide brand. But bankruptcy may be one way this will change.
Like the bankruptcy matter on which my law firm worked, it only makes sense for the Chinese supplier to be at the forefront in seeking to buy out of bankruptcy the brand of a company for which it previously manufactured the branded product. I thought of all this today after receiving an email from a China accountant with whom I have worked on a number of cross-border deals. The email links to an article on the recent purchase of Jennifer Convertibles out of bankruptcy by its largest supplier and creditor, Haining Mengnu Group Company of China.
I assume Mengnu learned of the possibility of buying Jennifer Convertibles by virtue of its being the largest creditor in Jennifer Convertibles’ bankruptcy. Under the deal, Mengnu swapped its unsecured claim of more than $16 million for 90.1% of the Jennifer Convertible stock when Jennifer Convertible emerged from bankruptcy last month. In other words, all or at least most of the purchase price did not even require Mengnu to pay money out of pocket. Mengnu is now an integrated worldwide furniture company, with manufacturing in China and a retail and distribution network in the United States.
Makes sense and I am confident we will be seeing more of these sort of deals.
What do you think? Are you aware of any similar such bankruptcy deals involving Chinese companies?