SonicBlue Bankrupt, Selling ReplayTV and GoVideo21 Mar, 2003 By: Holly J. Wagner
SonicBlue Inc., the company behind the controversial ReplayTVpersonal video recorder (PVR), and three of its subsidiaries will file voluntary bankruptcy petitions and sell off the ReplayTV and Rio player units, company executives announced today.
"We have great confidence in our business units, and worked to develop a plan that would permit SonicBlue to continue operating within the significant constraints imposed by our debt and legacy liabilities," said CEO Gregory Ballard. "In the end, we and our financial advisors have concluded that the best outcome for our creditors and our employees is to sell our businesses to better-heeled owners."
SonicBlue's stock price had languished to the 23-cent level in recent weeks, and plummeted to 6 cents a share today on the news.
The company will seek reorganization under Chapter 11 in the United States Bankruptcy Court in the Northern District of California, San Jose Division. It also plans to sell the ReplayTV and Rio business units to D&M Holdings Inc., the Japanese parent company of audio equipment subsidiaries Denon Ltd. and Marantz Japan, Inc., for $40 million, less up to $5 million of certain assumed liabilities and subject to adjustment.
The company's ReplayTV has been the target of a lawsuit by studios and networks seeking to force elimination the PVR unit's ad-skipping and program forwarding capabilities. Ballard recently told a group of analysts that fighting the lawsuit is soaking up as much as 20 percent of the company's revenue.
"We believe the proposed sale transactions will offer SonicBlue's current product lines a stable and financially strong base that will enable product development and current services to carry on," Ballard said. "The Chapter 11 filing will allow SonicBlue to continue its business operations while moving to complete these sales, and will provide the basis for a seamless transition of its businesses. The continued support of our manufacturers and retailers will play an integral role in our ongoing efforts to make the changes that will enable the continued growth and success of our products.”
In addition, the company will sell the assets of GoVideo business unit to Opta Systems, a wholly owned subsidiary of Carmco Investments, for approximately $12.5 million. The terms of the sale of these business units will require the approval of the Bankruptcy Court.
"As the former VP of worldwide sales for SonicBlue and having served for 10 years as the CEO of Sensory Science, the original developers of the GoVideo product line, I understand this business better than anyone," said Roger Hackett, vice chairman, Opta Systems. "I am thrilled to have the opportunity to work closely with the management team again to take GoVideo to the heights we know it can achieve."
SonicBlue has obtained the consent from its senior secured lender for interim use of cash collateral and post-petition financing in the form of an amendment to SonicBlue's pre-petition credit agreement that will provide $4 million of additional financing. In addition, SonicBlue intends to file "first day motions" with the court to support its employees, vendors and customers and to retain Houlihan Lokey Howard & Zukin Capital as financial advisors and Pillsbury Winthrop LLP as legal counsel.
In conjunction with the Chapter 11 filing, and as required under Section 363 of the Bankruptcy Code, SonicBlue also will file a motion for the establishment of bidding procedures for an auction that allows other qualified bidders to submit better offers for its assets. SonicBlue anticipates that the sale of its business units will be completed by the end of April, pending court and regulatory approval.
The bankruptcy follows negotiations with potential buyers and various debt holders on how to bail the company out of debt.