Done deal: Forever 21 sold to Simon, Brookfield venture for $81M

Bankrupt fast-fashion retailer did not receive any other bids

Feb.February 13, 2020 02:15 PM
Simon Property Group CEO David Simon and Brookfield Property Partners CEO Brian Kingston (Credit: Getty Images)
Simon Property Group CEO David Simon and Brookfield Property Partners CEO Brian Kingston (Credit: Getty Images)

A bankruptcy court judge on Thursday officially gave the green light on the sale of Forever 21 to a trio of investors — two of which are the retailer’s top landlords.

Simon Property Group, Brookfield Property Partners and Authentic Brands Group will pay $81 million for the company. The deal means Forever 21’s founding family, the Changs, have given up ownership after almost 35 years running the global discount fashion retailer.

David Simon, CEO of the mall owner, said during an earnings call earlier this month that the investor group planned to keep Forever 21’s remaining stores and website open. Simon Property and Brookfield are among Forever 21’s top unsecured creditors. He added the purchase provided an opportunity to reposition the retailer.

Forever 21, Simon, Brookfield and ABG did not immediately respond to requests for comment on Thursday.

The sale came after Forever 21 recently canceled a proposed auction of the company amid Chapter 11 bankruptcy proceedings after the company failed to secure other bids aside from the trio’s offer.

A bankruptcy court judge earlier this week indicated that he would sign an order approving the sale, which would keep about 25,000 jobs, Bloomberg reported.

But some of Forever 21’s creditors had concerns about the rapid pace of the sale, including that another unidentified buyer — that tried to get together another bid but was unable to land the financing — needed more time, according to the outlet.

“I think the fact that they weren’t able to get any other bidders, even through an auction process, is indicative of the fact that this is not necessarily inherently a company that, as far as its own economics are concerned, is worth saving,” said Steven Wilamowsky, a bankruptcy attorney and partner at Schiff Hardin in New York.

Eric Schiffer, CEO of private equity firm Patriarch Organization, which invests in e-commerce and Internet-based companies and tracks the retail space closely, said the $81 million price tag makes sense given the challenges the retailer faced.

“There’s an argument it’s even too much,” he said. [Do] you see anyone else stepping up? It’s like the plague and the only ones that are stepping up have a vested interest in doing it — and that’s rent and past rent.”

During his firm’s earnings call, Simon said rent was not the sole focus when it agreed to take over Forever 21. He cited Simon’s recent turnaround of another retailer, Aeropostale, as part of Simon’s motivation to undertake a deal. “Forever 21 is a storied and … widely recognized brand with over $2 billion in global sales,” he said. “We believe F21, similar to Aero, presents a very interesting repositioning opportunity.”

Following a wave of store closures and bankrutpcies that has racked retail real estate over the past several years, Forever 21 filed for bankruptcy in September and at the time said it would shutter 178 stores.

The company, which sells discounted fast-fashion apparel to young adults and teens, grew from its founding in Los Angeles in the 1980s to at one point generating $4.1 billion in annual sales from its global footprint of stores.

But that rapid expansion had a price: “The biggest issues that [Forever 21] had historically was that it took its eye off the ball, primarily because of the international growth,” Simon said during the earnings call.

Meanwhile, the transaction marks the second retailer takeover for ABG, a brand merchandiser. Last fall, ABG bought bankrupt department store Barneys New York. But for Barneys and its employees, the result of the acquisition has been more sobering: After the deal went through, ABG began to liquidate Barneys’ stores and lay off employees.

Write to Mary Diduch at [email protected]

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