Tuesday, Dec. 31, 2002 | 11:24 a.m.
A U.S. Bankruptcy Court judge on Monday conditionally approved the sale of Las Vegas technology company PurchasePro.com Inc. -- once valued at $3.2 billion -- to Perfect Commerce Inc. of Palo Alto, Calif., for $2.15 million.
The sale, to be finalized by Jan. 8, is pending an investigation by the office of the U.S. Trustee. The trustee is monitoring the administration of PurchasePro's bankruptcy.
In what bankruptcy attorneys described as a lengthy day of complex negotiations, Perfect Commerce -- which had emerged in recent months as the "stalking horse" bidder with an initial cash bid of $2 million -- outbid one other bid from Starwood Hotels & Resorts Worldwide Inc., former owner of the Caesars casino resort chain including Caesars Palace and the Desert Inn in Las Vegas.
Starwood, based in White Plains, N.Y., is one of the world's largest hotel operators with brands like Westin, Sheraton, W Hotels, St. Regis and the Luxury Collection.
Starwood and Perfect Commerce officials could not immediately be reached for comment. Starwood's interest in PurchasePro could be tied to PurchasePro's expertise in hospitality industry purchasing transactions.
Scott Farrow, an attorney for the U.S. trustee, said Starwood had bid Thursday -- the deadline for buyers to submit bids and make deposits to become qualified bidders for the auction Monday -- to buy PurchasePro for $2.05 million. But Perfect Commerce upped its initial bid by $150,000 to $2.15 million.
But concerns emerged over whether there was collusive bidding between Perfect Commerce and Starwood after PurchasePro notified the bankruptcy court on Monday that the two bidders had begun negotiating an agreement for Starwood to buy exclusive licensing rights to certain PurchasePro software. PurchasePro software is used by companies to buy goods and services.
Farrow said collusive bidding would violate the auction's goals to maximize proceeds and recovery for PurchasePro creditors.
"PurchasePro said it was notified on Friday that Perfect Commerce and Starwood had begun negotiating an agreement whereby Starwood would withdraw its bid and both bidders had wanted the auction to be adjourned to a later date so they could finalize the agreement for Starwood to buy the licensing rights," Farrow said.
"But Purchasepro and the Committee of Unsecured Creditors opposed the bidders' request for adjournment," he said. "Then Perfect Commerce (on Monday afternoon) announced it will increase its bid to $2.15 million and that it has a deal with Starwood."
"The sale's approval is subject to no objections being filed prior to Jan. 8," Farrow said. "The bankruptcy court said it was going to withhold signing the order of approval until Jan. 8 to allow the parties an opportunity to review the situation involving the bidders and to file objections if appropriate."
Greg Garman, PurchasePro's bankruptcy attorney, disputed Farrow's concerns, saying he believes Perfect Commerce is a "good faith buyer."
"I'm not sure if the allegations of collusive bidding are true. The U.S. trustee's office will conduct a discovery of those allegations. If they are true, the trustee's office will file objections to the sale," he said.
"(PurchasePro) found out late Friday (the two bidders) were planning to have lengthy discussions over the weekend about making a joint bid or entering into a business relationship together," he said. "I believe Starwood is interested in Purchasepro's e-procurement software that assists purchasing agents in the hospitality sector in acquiring goods and services."
"But I believe Perfect Commerce is a good faith purchaser because we have been negotiating at arms' length for several weeks since October to reach an asset purchase agreement," he said.
"We were supporting Perfect Commerce's (initial) bid (of $2 million) even though Starwood bid $50,000 more because terms of Starwood's proposed deal weren't economically favorable to PurchasePro," Garman said. "Starwood didn't commit to hiring all of our employees and had closing requirements for due diligence. Also Starwood could back out of the deal at any time, while Perfect Commerce could not."
Garman said all of PurchasePro's 50 non-management staff will be retained under the agreement with Perfect Commerce.
"Perfect Commerce intends to keep the 50 jobs in Las Vegas. I'm not aware of whether Perfect Commerce will keep PurchasePro as a separate entity or what its plans are concerning the PurchasePro name," he said. "But Perfect Commerce does intend to continue to operate PurchasePro's electronic commerce networks, which are created through PurchasePro's proprietary software."
Farrow said the U.S. trustee's office hasn't decided whether it will file objections to the sale.
Meanwhile, Garman said objections raised by several PurchasePro creditors to the sale were resolved and withdrawn.
"Some of the creditors had wanted the order of approval to say the sale didn't impact certain patent infringement litigation in New Jersey, while the civil district attorney's office had wanted PurchasePro to segregate $180,000 of the sale proceeds pending resolution of a dispute over real property taxes," he said.
PurchasePro, once the largest technology company in Las Vegas, filed for Chapter 11 bankruptcy protection in September because of its inability to sustain cash flow and substantial legal costs it incurred to defend numerous lawsuits and legal matters including shareholder actions and a Securities and Exchange Commission investigation.
Garman said it was premature to determine if the shareholders will be able to recover part of their investment. But he said the bankruptcy estate is exploring whether PurchasePro has claims to assert against third parties and wants to liquidate its accounts receivables to maximize recovery for creditors and potentially shareholders.
Farrow agreed. "We can't estimate what the distribution to creditors will be. The proceeds will be distributed pursuant to a restructuring plan that has yet to be filed."
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