Cash bid hiked for LV tech company

Grace Leong

Thursday, Jan. 9, 2003 | 10:57 a.m.

The sale of bankrupt Las Vegas technology company PurchasePro.com to Perfect Commerce Inc. -- subject of an investigation by the U.S. Bankruptcy Trustee -- won approval Wednesday after the buyer raised its cash bid to $2.325 million from $2.15 million.

But Greg Garman, bankruptcy attorney for PurchasePro, said the sale of PurchasePro will likely be finalized at about $2.56 million after Perfect Commerce, Palo Alto, Calif., acquires $238,000 worth of PurchasePro's accounts receivables.

The deal's improved terms and a finding Wednesday by U.S. Bankruptcy Judge Robert Clive Jones that the sale was "conducted in good faith" prompted the U.S. Trustee to withdraw its objections. Allegations of collusive bidding between Perfect Commerce and another bidder, Starwood Hotels & Resorts Worldwide Inc. of White Plains, N.Y., former owner of the Caesars casino resort chain including Caesars Palace and the Desert Inn in Las Vegas, were also withdrawn.

Perfect Commerce, which had emerged in recent months as the "stalking horse" bidder with an initial cash bid of $2 million, upped its bid to $2.15 million on Dec. 30 after Starwood submitted a bid of $2.05 million. But concerns emerged over whether there was collusive bidding after PurchasePro notified the bankruptcy court at its Dec. 30 auction that the two bidders had begun negotiating an agreement for Starwood to buy exclusive licensing rights to PurchasePro's hospitality industry-related software technology to help improve its operating efficiency and guest services.

Starwood is one of the world's largest hotel owners with brands such as Westin and Sheraton.

Barry Jenkins, attorney for the U.S. Trustee's office, said it had objected to the sale because it believed the bidders "acted in bad faith... (when) they entered into an agreement controlling the sale price of (PurchasePro's) assets."

The U.S. Trustee, in court documents filed Tuesday, said the agreement "essentially provided that if Perfect Commerce was the successful bidder, Starwood would, for certain consideration, receive a perpetual license and the Source Codes pertaining to certain software and other technology previously owned by (PurchasePro) along with support and other services."

"It is that agreement which is the basis for a finding of bad faith on the part of Starwood and Perfect Commerce. That agreement put control of the sale price entirely in the hands of Perfect Commerce, to the detriment of the estate and its creditors.

"The U.S. Trustee does not allege 'collusive' or 'fraudulent' intent on the part of Perfect Commerce or Starwood," the U.S. Trustee said. "But (bankruptcy law) is not limited to cases involving collusion or fraud. That statute sweeps more broadly and is aimed at all sales tainted by agreements between bidders which result in control of the sale price."

Perfect Commerce disputed the U.S. Trustee's objections in court papers filed Tuesday, saying there was "no collusive attempt... to lessen the paid-in value of the assets to the estate or to do anything other than arrive at a sensible business arrangement for the benefit of all parties."

Perfect Commerce, which said PurchasePro's financial statements indicated it was expected to have revenue of $10 million for 2002 and between $7 million and $10 million in 2003, reduced its estimate of the value of PurchasePro's assets to about $2 million after discovering PurchasePro's customer base wasn't as large as initially indicated and that the projected revenue was "grossly overestimated."

Perfect Commerce said Starwood, which had begun negotiations for the software license agreement with PurchasePro prior to Perfect Commerce's involvement in the bidding process, had considered buying PurchasePro.

But Adam Diamond, Starwood's director of corporate investments and development, in court documents filed Jan. 3, said Starwood decided to drop out of the bidding process because of "significant" legal and business challenges.

As part of the acquisition, Diamond said the hotel chain operator would have had to provide funding of PurchasePro's operating losses and also pay FreeMarkets Inc. -- a company that had filed patent infringement claims against PurchasePro -- additional funds to obtain a license to use Freemarket's technology, which is allegedly incorporated in PurchasePro's software.

"There was no agreement among the bidders for one bidder to drop out of the bidding in order to split between them profits that would have gone to (PurchasePro)," Perfect Commerce said. "Starwood has always been primarily interested in obtaining a license for (PurchasePro's) hospitality industry-related software technology... Perfect Commerce, on the other hand, gains in Starwood a valuable customer and one that... will stabilize (PurchasePro's) business."

Brett Axelrod, Perfect Commerce's attorney, said Perfect Commerce "doesn't have a huge penetration in the hospitality industry" and saw the deal as an opportunity to develop a presence in that industry.

Meanwhile Jenkins, at Wednesday's hearing, said the U.S. Trustee withdrew its objections after finding that "with the increased monies being paid by Perfect Commerce, the total (sale price) more accurately reflects the true value of PurchasePro's assets."

He said the U.S. Trustee has no further objections to Perfect Commerce and Starwood continuing their negotiations over the license agreement.

Laurel Davis, attorney for PurchasePro's landlord, Cheyenne Investments LLC, which is owed about $4.2 million in promissory notes, said it withdrew an objection to the sale after Perfect Commerce raised its bid and agreed to buy PurchasePro's accounts receivables.

But the higher price for PurchasePro offers little solace for the company's shareholders, who lost billions of dollars when the company encountered hard times and found itself embroiled in shareholder lawsuits and came under scrutiny by the Securities and Exchange Commission. At its peak during the nation's euphoria over dot-com startups in 2000, PurchasePro stock was valued at $3.2 billion.

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