Gottschalks in partial takeover by sourcing firm    

Fresno, Calif. – Western regional department store chain Gottschalks will sell a major ownership stake to British Virgin Islands-based Everbright Development Overseas Ltd., a firm with hotel and export holdings in China.

Under terms of a letter of intent, Gottschalks will sell Everbright $10 million worth of newly issued common stock pegged at $1.80 per share, amounting to an immediate 29% share of ownership, or some 5.6 million shares.

Further, Gottschalks will issue a five-year convertible secured note for $20 million to Everbright, convertible at the fixed price of $1.80 per share (roughly equivalent to another 58% stake).

Additionally, Everbright will be warranted to pay either $120 million cash “or certain of Everbright’s real estate assets” to buy up to 60 million more shares – but only when the share price is $6.00 or higher for any 60-day period during the next three years (equal to a 67% discount on 60 million shares – but $30 million more than today’s share price of $1.51 per share).

In exchange for this $30 million upfront investment, the 61-store retailer will also begin direct-sourcing goods through the Everbright “network of Chinese manufacturers” – and to “establish consignment arrangements” for merchandise categories to be determined.

Jim Famalette, chairman and ceo of Gottschalks, said the sourcing aspects of the new partnership will enable the company “to introduce and test an expanded merchandise assortment with very limited risk by working with manufacturers that would offer products through our stores on consignment.”

Mi Wang, chairman of Everbright, said, “Gottschalks has established itself as a leader in bringing the best brands and quality merchandise to customers in their markets in the U.S. This investment and partnership with Gottschalks will extend the distribution in the U.S. for many of Everbright's Chinese manufacturing partners. We look forward to capitalizing on the complementary aspects of our businesses and forming a solid, long-term relationship with Gottschalks.”

In August 2007, Gottschalks said that it had terminated an “exploration of strategic alternatives” conducted on its behalf by UBS Investment Bank.

The proposed deal has a 45-day exclusionary negotiation period, and will be subject to a vote of shareholders at a special meeting. Gottschalks said it anticipates executing the agreement by the fourth quarter of this year.

Home & Textiles Today Staff | News & Commentary

 Home Textiles Today is the market-leading brand covering the home and textiles markets, offering a comprehensive package of print and online products. Home & Textiles Today provides industry news, product trends and introductions, exclusive industry research, consumer data, store operations solutions, trade show news and much more.

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