Bluestem Brands, the online retailer that emerged from the Fingerhut mail-order company after the collapse of the Tom Petters empire, is being acquired in a deal that will yield tens of millions for victims of the Petters fraud.
Bluestem, operator of Fingerhut, sold for $565M
Victims of the Tom Petters bankruptcy fraud will see more than $60 million from the sale of the company once known as Fingerhut. A trustee says it was the smartest investment Petters made.
September 30, 2014 at 5:14AM
Capmark Financial Group, a publicly traded real estate lender, said Monday it will pay $565 million in cash for Eden Prairie-based Bluestem, which had tried three years ago to go public but pulled back in an unfavorable market.
Through Fingerhut.com and two other websites, Bluestem sells a wide range of merchandise to low-income customers who have trouble getting access to traditional credit. It offers them monthly installment plans to pay for items.
Steve Nave, Bluestem's chief executive, will become the CEO of the combined firms and Bluestem's headquarters will remain in Eden Prairie. Capmark's shares rose 3 percent on the news.
"Joining with Capmark offers an excellent opportunity for Bluestem to enhance its ability to deliver industry-leading growth and drive future shareholder value," Nave said in a statement.
Petters had an 18 percent stake in Fingerhut, which was renamed Bluestem in 2010, at the time of his financial collapse in 2008. The company's sale will yield $67 million to creditors who fell prey to a $3.65 billion Ponzi scheme that Petters ran, involving the fictitious purchase and sale of consumer electronic goods. The scheme was the biggest business fraud in Minnesota history.
Doug Kelley, the Petters bankruptcy trustee and court-appointed receiver, said $58.2 million will go to his corporate bankruptcy account for creditors and $8.8 million will be directed to his personal receivership.
"I have to tip my hat to the management of Bluestem," Kelley said. "They made it through a tough 2009 and then kept the earnings up to help make this sale possible. This is one of the few good investments that Tom Petters ever made."
Including previously paid dividends to Petters' creditors, Bluestem will have paid $136.9 million to the bankruptcy and added $15.5 million to the receivership, he said.
Capmark, based in the Philadelphia suburb of Horsham, said it will pay for Bluestem with cash on hand and funds invested in it earlier this year by Centerbridge Partners LP as well as Bluestem debt. Some members of Bluestem's management team are also helping fund the transaction. The deal is expected to close in the fourth quarter of this year.
On Monday, a spokeswoman for Bluestem said executives weren't available for comment. Capmark did not return messages. Its management scheduled a conference call with analysts Tuesday.
In addition to Fingerhut, Bluestem also operates a website under the name Gettington.com and runs PayCheck Direct, a program offered directly through employers and organizations so employees can buy items through interest-free payroll deduction.
According to Bluestem's website, the company has experienced an average of 18 percent increase in sales over the last four years. In August, it reported annual sales of $943 million, a 25 percent increase, in the 52-week period ended August 1.
As it has grown, it has moved up the Internet Retailer's Top 500 list of U.S. e-commerce retailers, reaching No. 62 earlier this year.
"Our growth is a testament to the value we provide to low-to-middle income consumers and our relentless focus on improving the offering and shopping experience across all our brands," Nave said when that ranking was announced.
In March, Bluestem, which has about 1,150 employees, launched a national television campaign with ads that appeared during shows like "The View" and "Today."
In 2011, Bluestem considered going public but withdrew the offer because of unfavorable market conditions as underwriters and potential investors could not agree on a share price for the company. Bluestem had hoped to raise $150 million from that offering to pay down its debt.
Founded in 1948, Fingerhut was sold for nearly $2 billion in 1999 to Federated Department Stores. But in 2002, Federated shuttered the business. Petters helped buy its assets that year in order to resume Fingerhut's catalog distribution.
In 2010, it changed its name from Fingerhut Direct Marketing to Bluestem Brands.
Meanwhile, Capmark has been hunting around for some acquisition targets this year. In March, Centerbridge Partners, a private equity firm focused on leveraged buyouts and distressed securities, invested in Capmark and agreed to help finance and identify acquisitions. A call to Centerbridge on Monday was not returned.
After the sale, Capmark's top executives, CEO Bill Gallagher and Chief Operating Officer Tom Fairfield, will remain with the company and manage its legacy assets.
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