By Craig Webb, President, Webb Analytics
As we enter the final days of True Value Co.'s existence, how you feel about the distributor's Chapter 11 bankruptcy and sale to Do it Best may depend on whether you count yourself a winner or a loser in the deal. Here's one reporter's assessment.
Winner: Do it Best
Do it Best stands to gain roughly 4,000 new members (500 of the 4,500 True Value customers already had relations with Do it Best) and potentially $1.5 billion more buying power. That's roughly a doubling of membership and dramatic purchasing power growth from the $4.57 billion it spent buying goods for its members in the fiscal year ended June 30.
Winner: Other Distributors
Orgill, Ace Corp., and other distributors were recruiting True Value dealers almost from the day True Value Co. filed for Chapter 11 bankruptcy on Oct. 14. Orgill noted that 400 True Value retailers converted to it in the past two years and 65 more conversations were in the works. It already shares business with True Value at 800 stores. Ace pointed out that it has converted 918 True Value stores to Ace since 1998. This pursuit of True Value dealers almost certainly will continue. It probably will take months or even years before we know just how many True Value dealers resist the sirens' song and stick with Do it Best.
Loser: True Value's Vendors
As of late Nov. 13, a total of 1,035 claims have been filed by True Value's vendors. Their claims total $116.6 million, of which $103.5 million are unsecured. Do it Best's purchase agreement calls for it to pay only up to $45 million to assume trade receivables. Thus, unsecured vendors at best will get less than 50 cents on the dollar. In addition, some vendors that already have relations with Do it Best might find themselves needing to renegotiate programs, while vendors that don't work with Do it Best now could find they no longer have easy access to True Value customers. That's particularly true for the companies behind True Value's 11 private label brands.
Loser: True Value's Creditors
When it filed for Chapter 11, True Value had $219.46 million outstanding in revolving loans and $18.75 million in term loans from a consortium of financial institutions led by PNC Bank. The original sale agreement called for Do it Best to pay True Value $153 million in cash. Given that the lenders assumed True Value would burn through all $236 million in credit before the sale was completed, it appeared the lenders would lose $83 million. Subsequent negotiations--some spurred by federal Bankruptcy Court Judge Karen Owens--ultimately led to an agreement in which the banks would get $163 million, in part through a $10 million backstop from Do it Best if there wasn't any money money left after True Value processed the bills it ran up while in bankruptcy. The final calculations haven't been worked out, but at the very least the creditors' relationship with True Value Co. will cost them around $73 million.
Winner: The Co-op Movement
Being part of Do it Best returns True Value dealers to the co-op format that TV operated under before ACON Investments bought a controlling 70% stake in True Value Co. in 2018. Some True Value dealers are likely to welcome a return to an operation that exists to serve their and the industry's best interests. "I think there's a case that we can make that, culturally, this co-op is part of a heritage of how they have historically done business and this is the better home for them," Do it Best President Dan Starr told Webb Analytics on Oct. 15.
Winners/Losers: True Value Employees
True Value on Oct. 14 employed roughly 1,950 people, of which 1,370 worked in 12 distribution centers. As part of the bankruptcy, True Value notified state officials nationwide that it was planning to close all 12 DCs. Now Do it Best must decide whether it will keep some of those DCs open. A map created by HBSDealer showed True Value and Do it Best had DCs close to each other in Oregon, Texas, Minnesota, Illinois, and Ohio. overlaps Given the potentially thousands of True Value dealers joining Do it Best, it's logical the co-op also will need to add staff and perhaps keep some DCs to serve them. For instance, some of the 115 sales employees may be worth hiring in order to keep up relations with True Value dealers. True Value also owns one store with 15 employees, and 270 of the warehouse workers are members of the Teamsters Union. Figuring out what and who to keep and what and who to let go will be one of the continuing stories in this saga.
Loser: Vendor, Dealer, and Customer Trust
Some vendors said True Value this summer and fall was blaming late and non-payments on a switch to a new check-disbursal system rather than any struggle to find cash. The subterfuge also was part of True Value's fall market in September in Orlando, where True Value treated its dealers to a visit to Universal Studios and gave no impression it was in trouble. "The net effect is that the TV brand has been tainted with failure, dishonesty and subterfuge, if not fraud, at the wholesale level," Bill Round, owner of Round's True Value Hardware in Stoneham, MA, told Webb Analytics. "Perhaps this will stop short of the retail brand identity. Maybe." The fear of losing customers is palpable; when news of the Chapter 11 filing broke, several True Value dealers issued statements saying they weren't going away and that they had multiple sources to stock their stores.
Winner: Insiders
Seven True Value executives were paid nearly $1.8 million in retention bonuses during the 12 months before the Oct. 14 bankruptcy filing, True Value's Statement of Financial Affairs reported Nov. 5. That was part of the more than $9.5 million in salaries, bonuses and expense repayments made to 16 executives. In addition, ACON Equity Management was paid $1.15 million, while lawyers, and management advisors, and related firms called in to help in the bankruptcy process have been paid at least $16 million. You could say some vendors enjoyed insider status, too. Most of the $183.3 million that True Value paid out went to landlords, service providers, and other firms vital to keep trucks rolling and products on shelves. But some building product manufacturers also got paid--some over $1 million. And, in general, their names don't appear on the claims list of unsecured creditors.
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