Jacobs Out At Genmar, FLW Seeks Engines From Ranger

Several actions in the Genmar bankruptcy developed last night that should give pause to anyone involved in the sport of pro bass fishing.

First, Irwin Jacobs is no longer directing Genmar Holdings, Inc. He resigned, or was asked to step down, as chairman and CEO of the boat-building conglomerate.

In a separate action, Operation BASS

(doing business as FLW Outdoors), which is owned and operated by Jacobs, filed a motion with the court asking for return of more than 200 motors currently in the possession of Genmar companies Ranger and Stratos. The motion was granted.

Conflict of Interest

Genmar filed for bankruptcy protection in June of this year. Since that time, the company pursued two strategies to exit bankruptcy. One was a reorganization through the infusion of lending, the other was a sale of assets.

Genmar retained Houlihan Lokey Howard & Zukin Capital, Inc. to identify and track entities interested in purchasing the Genmar businesses.

After a lengthy period, Genmar announced 2 weeks ago that it would abandon the reorganization strategy and proceed with a sale of the company (or companies).

An unidentified party emerged as the "stalking horse" – i.e. the one company best able and most likely to purchase the Genmar assets – and the court granted Genmar's request to deal exclusively with that stalking horse and entertain no other offers. At the same time, Jacobs was given the right, as a private citizen, to match or better the stalking-horse offer.

Late last week, Jacobs stated publicly that he planned to be the high bidder in the sale and raise his stake in Genmar from 40% to 80%.

Following those comments, Jacobs resigned (or was asked to resign) from Genmar yesterday.

Manchester Companies, Inc., which serves as Genmar's restructuring firm, announced the news in a press release.

Manchester chairman and CEO Mark Sheffert said in the release: "Given the circumstances surrounding Genmar as it moves forward in the sale of the company's businesses and non-core assets in the bankruptcy process and in light of Mr. Jacobs' public comments regarding his desire to participate as the 'highest bidder' in the auction process, this decision was made in the best interest of all constituents. The separation will allow for Mr. Jacobs to pursue objectives he may have relative to Genmar's asset sale process in an effective and independent manner and eliminates potential conflicts of interest. Genmar intends to continue the auction process that is normal for these types of bankruptcy cases and that is being overseen by the bankruptcy court."

Genmar president Roger Cloutier communicated the news to Genmar dealers in a note that read, in part, "Since June 1, 2009, as I am sure most of you know, Genmar has been operating under the direction of (Manchester), a firm that was engaged as the chief restructuring officer (CRO) as required under the company's senior secured DIP financing agreement. At that time the CRO was given the full authority generally vested in the chief executive officer role. An Office of the President also was established which included two representatives of Genmar and two representatives of Manchester. This organizational structure will continue going forward."

Cloutier's note also said: "It has always been the intent of Genmar's management to protect and promote the boat businesses, the brands, the employees, its dealers and loyal retail customers. These objectives will not change as Genmar moves forward. Please understand that Genmar management, Manchester, our investment bankers and other professionals are very diligently focused on completing the asset sale process as prudently as possible. In the meantime, we continue to build boats based on a good backlog of orders and to support our dealers as best as possible."

Pro fishing thus finds several of its major boat companies (Ranger, Stratos, Champion), and one of its major leagues (FLW Outdoors) somewhat in limbo.

Jacobs started the FLW Tour and later acquired Operation BASS in order to boost sales of his Genmar boat brands (primarily Ranger, then later Stratos and Champion, which were acquired during the OMC bankruptcy).

With Jacobs effectively out of Genmar, at least for the time being, Jacobs currently operates FLW Outdoors to boost sales for a company in which he no longer participates directly.

Most in the industry expect Jacobs to regain ownership and control of Genmar, although ultimately that is up to the bankruptcy court. Still, FLW Outdoors is currently in negotiations with sponsors for the 2010 season and beyond. Jacobs, presumably, spearheads those negotiations, and likely must convince sponsors that FLW Outdoors, and its primary reason for existence (Ranger Boats), can still be connected.

Additionally, the Minneapolis Star-Tribune late yesterday reported that "a source close to the process" had identified Beverly Hills-based Platinum Equity as the stalking horse. Some in the industry felt the stalking horse could be an associate of Jacobs, which would buffer Jacobs against the looming sales deadline. If the Star-Tribune is correct, that means Jacobs does in fact have a competitive bid in the sale process.

FLW Engines

Also yesterday, FLW Outdoors filed an expedited motion with the bankruptcy court for emergency relief from stay. FLW Outdoors is a creditor in the bankruptcy, initially owed $3.26 million at the time of filing.

The motion asked for Ranger to transfer possession of 42 Evinrude and four Yamaha motors to FLW Outdoors. The motion specifically requested "an order temporarily restraining the debtors (Ranger) from transferring these engines or taking any other action that could affect FLW Outdoors’ ownership interest in them."

Ranger, Evinrude and Yamaha were sponsors of FLW Outdoors this year, and FLW Outdoors tournament prizes regularly include fully-rigged Ranger boats. Although FLW Outdoors owns the manufacturer's statement of origin (MSO) on the engines via the Evinrude and Yamaha sponsorships, the engines were housed at Ranger headquarters to be rigged on the prize boats. However, according to the motion, those engines still reside at Ranger.

The Evinrude engines were part of a 2009 sponsorship contract signed in 2008 that specified the motors for payment of the sponsorship in lieu of cash. The four Yamaha engines were part of 16 total presented to FLW Outdoors for partial payment of 2009 sponsor fees.

Value on the outstanding Evinrude engines is listed as $421,911.50. Value on the outstanding Yamaha engines is listed as $39,846.80.

Again, according to the motion, FLW Outdoors owned title to the engines and the engines were not listed as assets in the bankruptcy.

It's curious then that the motion states: "Prior to filing this motion, FLW Outdoors demanded that Ranger and Stratos turn over possession of the 42 FLW Evinrude engines and the 4 FLW Yamaha engines that FLW Outdoors owns, but the debtors have refused. FLW Outdoors has possession of the original MSO for each of the FLW engines, and each MSO is titled in the name of FLW Outdoors as owner of the FLW engines."

The motion also states: "FLW Outdoors seeks emergency, expedited relief because, upon information and belief, Ranger and/or Stratos has purported to sell or may attempt to sell one or more of the FLW engines in direct violation of their prior agreement with FLW Outdoors. Upon information and belief, one or more of the FLW engines have been installed on boats and/or transferred to third parties without the prior permission of FLW Outdoors and in direct contravention of FLW Outdoors' ownership interest in them. In lieu of expedited relief, FLW Outdoors seeks an order temporarily restraining the debtors from transferring any of the FLW engines or taking any other action that could affect FLW Outdoors' ownership interest in them pending a final hearing on the motion."

U.S. bankruptcy judge Dennis O'Brien granted FLW Outdoors the expedited relief it sought and gave permission for FLW Outdoors to acquire possession of the motors. Additionally, O'Brien restrained Ranger and Stratos from "transferring the FLW engines or taking any other action that could affect FLW Outdoors' ownership interest in them."

The Larger Picture

The FLW Outdoors motion and subsequent court order are telling on many fronts.

First, it may indicate some unrest between Ranger/Stratos and FLW Outdoors management. Until yesterday, when Jacobs resigned, both FLW Outdoors and Genmar operated through the IDS Tower in Minneapolis, Minn., where FLW Outdoors chairman Jacobs and FLW Outdoors COO and CFO David Mahler hold office. (FLW Outdoors president and CEO Charlie Evans is based in Benton, Ky.)

The motion was submitted to the court on the same day that Jacobs stepped down from Genmar, which perhaps gave FLW Outdoors the leeway to proceed against Ranger.

Jacobs is mentioned nowhere in the FLW Outdoors motion.

Likewise, the motion clearly shows what the FLW Outdoors sponsorship cost Evinrude and its parent company Bombardier. Sponsor-contract terms are typically kept from the public, but it appears that Evinrude's 2009 sponsorship of FLW Outdoors cost the company 234 motors. To use even a conservative figure of $8,000 per motor, Evinrude's sponsor commitment was in the neighborhood of at least $2 million.

Since the Yamaha motors were used as "partial payment" of sponsor fees, a total figure can't be extrapolated for the Yamaha contract.

It should be noted that in August of this year, FLW Outdoors filed suit against Evinrude. FLW Outdoors claimed in the suit that Evinrude failed "to pay its agreed upon sponsorship fees for the entire 2009 FLW Outdoors tournament season," and FLW Outdoors paid nearly $100,000 of Evinrude contingency bonuses to competitors without recompense.

At the time, it was difficult to discern whether that suit was limited to the $100,000 in contingency fees, or whether Evinrude failed to pay fees under the larger sponsorship contract. Because yesterday's motion clearly states that Evinrude did transfer 234 engines to FLW Outdoors, it would appear that the suit relates to only the contingency bonuses. If so, that would mean FLW Outdoors sued Evinrude over non-payment of roughly 5% of agreed sponsor fees or less.

At the same time, Genmar (a separate company from FLW Outdoors, although previously related via Jacobs), is listed as owing Evinrude $560,000 in the bankruptcy.

And the sum owed by Ranger and Stratos to FLW Outdoors, listed as $3.26 million total in the original bankruptcy filing, is a much larger figure (although Genmar was subsequently cleared to pay nearly $800,000 of that debt).

The interplay of the separate entities certainly paints a confused landscape.

When Jacobs first entered the sport in the mid-1990s, he convinced Fortune 500 companies to embrace his vision of a boat company married to a major tournament trail. The result was a revolution that involved skyrocketing purses, lucrative sponsorships for pro anglers, newfound national visibility and even a fantasy-fishing game that awards millions of dollars in prizes.

With that marriage, at least temporarily, in separation, all eyes in the sport are currently on Jacobs. Apparent conflict between his tournament trail and former boat companies and sponsors, as well as uncertainty over who will emerge with control of Ranger Boats, has created an unsettled atmosphere in an already beleaguered and fractured sport beset by increasing costs, devolving participation and dissolving sponsor support.