Drive-thru coffee chain 7 Brew wants a piece of Salad and Go’s portfolio, according to a court hearing held last Friday.
Competitor Dutch Bros originally submitted an exclusive $105 million bid last week for 51 Salad and Go sites, said Omar Alaniz, a partner from Reed Smith, who represented the debtor during the hearing. Dutch Bros also was in negotiations to take another 14 sites from Texas and Oklahoma, assuming liabilities of those locations. Dutch Bros CFO Joshua Guenser said last week that the sale was moving forward.
7 Brew’s lawyers raised concerns over how the Dutch Bros sales process was being run.
“My client put forth a [letter of intent] a week ago, and we were iterating on multiple bids that provided more dollar value and provided certainty of closing greater than that which was provided by the Dutch LOI that was signed that same day,” Ross Fiedler, a restructuring partner at Kirkland & Ellis, said during the Friday hearing.
Fiedler said his law firm has represented debtors in similar positions and knows how to run lease auctions, adding that “there have been burdens placed on this marketing process that are not really consistent with obtaining the highest and best price.”
Fiedler added that various elements of the proposed sale “don’t make much sense.” The exclusive agreement in the Dutch Bros LOI prohibited debtors from talking to 7 Brew a week before filing, for example. The inclusion of a termination fee or $10 million overbid increment, despite knowing two bidders existed, also seemed a bit odd, he said.
“At multiple times we said we were willing to do an auction process, and we're happy to serve as a stalking horse bidder,” Fiedler said.
7 Brew also submitted an updated bid to debtors that offers more consideration and more acquired leases than the other proposed acquisition, he added.
“We believe it's incumbent upon the debtor to evaluate whether it's willing to entertain other bids here and make that transparent to the court,” Fiedler said.
Alaniz said that even though Salad and Go entered a direct sale with Dutch Bros, the chain will put up its remaining 100 leases up for sale in a competitive process and has already been approached by “many interested parties, some that want certain blocks, some that are one-off,” Alaniz said.
Alaniz added that the debtor will file a bid procedures motion to get that process started, leading to a sales hearing by Sept. 3.
While Fiedler said that he appreciates that Salad and Go will run an auction and marketing process for the rest of the portfolio, none of the leases Dutch Bros proposed to buy will be part of that.
“We just felt the need today to express these concerns,” Fiedler said. “We're not trying to be difficult here, and we appreciate all the work that the debtors have done thus far.”
Salad and Go filed for Chapter 11 bankruptcy on Aug. 5, closing 70 of its stores months after it shuttered dozens of restaurants across Texas and Oklahoma. The chain incurred significant costs and expenses following aggressive expansion into Texas. Reduced consumer demand over the past few weeks following the cyclosporiasis outbreak, which impacted shredded iceberg lettuce, didn’t help.
