MTD Asset Acquisition (MTD), the bidder that was not selected during the auction for Modern Times last week, has filed an objection to the court-appointed receiver’s selection of BX MT BAMF LLC (BX), an affiliate of Anaheim, California-based Brewery X, as the “winning” bidder in the auction for the San Diego craft brewery.
In addition to the objection, filed today in Orange County Superior Court, MTD also submitted a new bid of $21 million with a 30-day closing window and without the request for the receiver to file for Chapter 11 bankruptcy following the purchase.
“The auction was not conducted in accordance with the auction rules and the procedure was not fair, not commercially reasonable, and not designed to maximize value for the creditors,” Michael B. Lubic, attorney for MTD, wrote in the objection.
The auction took place Friday June 17 from 9 a.m. to 12:30 p.m. Pacific, concluding after more than 70 rounds of bids from MTD, BX and Maui Brewing, according to Modern Times’ receiver Thomas C. Hebrank, in his declaration in support of the auction sale and results, filed with the court.
According to MTD’s asset purchase agreement included in Hebrank’s declaration, MTD is a Delaware-based LLC that lists K. Bagby Taylor as its president. Kurt Bagby Taylor is the founder of Next Glass, the parent company of Untappd, BeerAdvocate and Hop Culture; he exited the company following its sale in March 2020.
His father, George Taylor, is the CEO of Wilmington, North Carolina-based TRU Colors Brewery. According to notes in the auction bid log, MTD was bidding on behalf of TRU Colors.
A court hearing on the sale is slated to take place today.
During the auction, which entailed “robust bidding,” Hebrank selected BX’s final offer of $20 million as the winning bid. BX MT BAMF’s terms stipulated that $20 million would be paid to Hebrank within seven days of the court’s sale order. The deal would close within 14 days.
The MTD offer of $20.1 million during Friday’s auction, which was rejected in favor of the BX offer, would have required Hebrank to file for Chapter 11 bankruptcy on behalf of Modern Times and would have closed in 120 days, the maximum length to close under the rules of the auction. However, the auction rules stipulated that “no weight is being assigned to a shorter closing period.”
BX added the 30-day close stipulation to its bid at the $13 million mark. Immediately following, MTD overbid at $13.1 million, but did not specify a closing period, which prompted counsel for Live Oak Bank, one of Modern Times’ creditors, to ask Hebrank for clarification, according to an auction transcript included in MTD’s objection.
“I’m giving no additional consideration to the time closing in the APA [Asset Purchase Agreement],” Hebrank said. “It is up to 120 days, so if they close in 30, that’s great.”
Upon hearing that, a BX business person remarked that Hebrank had “just f***ing screwed us.”
“So to be clear, Mr. Hebrank, you are indifferent as to whether I change my closing date to 120 days, 220 days or two years?” BX’s counsel asked.
Hebrank clarified that 120 days would be the maximum time allowed, but “if you do it sooner, it is fine by us.”
In Hebrank’s post-auction declaration, he reported the factor of the Chapter 11 filing, “among others” in the MTD offer, “increased risks” for the sale, concluding that the $20.1 million bid, “which was only $100,000 greater than the less risky BX MT bid, would subject the estate and its creditors to greater risk of delay and even a risk of not closing, compared to the BX MT bid of $20,000,000.”
However, filing for Chapter 11 bankruptcy was an avenue included in the auction rules, according to MTD’s objection.
“The receiver will request that the receivership appointing order be amended to include sole authority for the receiver to file a Chapter 11 bankruptcy action,” the rules read. “If granted, this authority will only be used if requested by and in concurrence with the winning bidder, and will be solely an expense to be borne and paid by the winning bidder.”
MTD noted that the rules “did not state that this option was disfavored.”
In his filing, Hebrank wrote that he, as well as “other representatives of other parties in attendance” – including Modern Times’ attorney Jim Hill and Zions Bank’s attorney Michael Fletcher – “made clear” that “all factors would be considered” in determining the “highest and best bid.”
Hebrank noted that he and Hill told auction participants that “the auction would be based on the dollar-to-dollar amounts of bids,” and that they “could not give specific weight to, a creditor for, or a dollar amount value to other elements of bidders bids, including their promised time to find or to close.” However, “all elements of a bidder’s final bid would be factored and evaluated in the determination of which bid was the highest and best bid, as distinct from just the highest bid in terms of dollar amount.”
“Indeed, in response to a question from counsel for MTD during the auction posed to representatives of the secured creditors, counsel for Zions responded that a shorter time to close would in fact be considered a favorable factor in the final determination of what was a best bid,” Hebrank added.
Of its new, higher bid, MTD said it “is materially better than the BX bid and addresses the concerns of the receiver.”
“When bidding at an auction, it is generally preferable for all parties to bid under the same terms, apples to apples,” MTD wrote. “However, particularly in distressed situations, that does not always happen, and apples to oranges bids frequently occur. This is why in distressed sales it is customary for the seller to meet with bidders individually to discuss non-monetary terms and work to get the best possible bid. That did not happen here.
“The receiver never discussed with MTD that he attributed value to the noneconomic terms,” they continued. “The receiver never discussed how he evaluated the difference in non-economic terms in comparison to the difference in purchase price. The receiver, having determined that the lower monetary bid was preferable, did not give MTD the opportunity to improve its bid. The failure to consult with the parties regarding the noneconomic terms and thereby facilitate and allow improvements in bids resulted in a flawed sale process.”
Following the announcement of BX’s accepted highest bid, MTD was offered the position of “backup bid,” which would be honored should BX’s bid fail to close in a “timely” manner, according to Hebrank’s filing. MTD declined the option, and instead asked that auction bidding be reopened to “allow [MTD] to change terms of its bid to remove the bankruptcy option” and “shorten the time for it to fund and close the sale.”
Following objections from “representatives of the creditors in attendance,” as well as a “representative of the announced winning bidder,” the request to reopen was declined. Maui was then offered the backup bid position, at its last bid of $15.3 million, closing within 120 days’ notice of the MTD’s bid’s failure to close.
The addition of a 14-day closing guarantee to BX’s bid was first noted with BX’s offer of $14.4 million, more than 25 bids into the auction, according to the auction bid log in Hebrank’s filing. A 14-day closing promise, with funds given within seven days, was consistently noted with every BX offer beginning with the company’s $17 million bid, according to handwritten notes on the log.
Editor’s note: this story was update at 5:35 p.m. on Monday, June 20 to reflect that MTD was bidding on behalf of TRU Colors. Kurt Bagby Taylor is no longer affiliated with NextGlass.