Third time's the charm in Polaroid auction

The firm, caught up in the Tom Petters criminal case, was sold in bankruptcy court twice before, only to have do-overs declared.

A tumultuous auction for Polaroid Corp. ended Thursday with a St. Paul bankruptcy judge declaring liquidators Hilco Consumer Capital of Toronto and Boston-based Gordon Brothers Brands the winner with a bid of $85.9 million in cash and equity. The joint venture's bid was nearly a half million dollars lower than Patriarch Partners', but the judge deferred to creditors who urged him to approve the joint venture's bid as the best choice because of protections it offers them as minority shareholders.

It was the third round of bidding for the instant photo icon since the slugfest began March 30, with each of the top two bidders winning once, only to have the auction reopened each time. Patriarch Partners, a New York private equity firm, technically won the 3 1/2-hour auction in court Thursday with its high bid of $86.4 million, but it could not prevail as the "highest and best" bid without the judge's final approval.

"We won, we lost, we won during the last three weeks, and it's great to come out the victor," said Jeffrey Hecktman, chairman and chief executive of Hilco Trading.

Hilco and Gordon Brothers have purchased other distressed companies, including Linens 'N Things, Bombay Brands and Sharper Image. Their bid was significantly higher than the original bid of $43.58 million in March.

While so-called "363 sales" -- or outright sale of a company in Chapter 11 instead of reorganizing it -- typically are contentious, all sides agreed the auction for Polaroid was a strange one.

"We have had perhaps the most extraordinary auction in the history of 363," Daryle Uphoff, an attorney for the debtors, told U.S. Bankruptcy Judge Gregory Kishel. Uphoff had urged Kishel to approve Patriarch as the winner, arguing it offered more cash and had expressed intent to retain the lease and employees at Polaroid's headquarters in Minnetonka. It is unclear how the Hilco group will handle Polaroid's workforce and headquarters.

Both bids included 25 percent equity in the new Polaroid, the maximum allowed in the auction, but differed primarily on the cash amount, the equity structure and the value of excluded assets. Patriarch's bid, for instance, included Polaroid's large art collection, which includes original works by Ansel Adams and Andy Warhol. The Hilco group's bid did not. The collection was given an estimated value of $6.5 million in the auction, but New York auction house Sotheby's actually appraised the collection between $7.3 million and just over $11 million, according to testimony Thursday.

Stephen Spencer, a director at restructuring bank Houlihan Lokey Howard & Zukin, which handled the auction, testified that Hilco's proposed equity structure was more transparent, benefiting creditors. He also said Hilco's branding model would require less working capital than Patriarch's.

Polaroid filed for bankruptcy in December, shortly after Minnesota businessman Tom Petters was indicted on charges of running a $3.5 billion Ponzi scheme. Petters, 51, of Wayzata, denies the charges and is preparing for a trial.

Petters purchased Polaroid in 2005 for $426 million. The court-appointed attorney managing his estate filed an affidavit Monday saying Petters bought Polaroid with money he fraudulently obtained through his financing entity, Petters Co. Inc.

Jennifer Bjorhus • 612-673-4683

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