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Oct. 10: Layoffs coming at Petters companies
- Article by: LIZ FEDOR
- Star Tribune
- October 13, 2008 - 10:38 AM
About 50 employees of Petters Group Worldwide companies are expected to get layoff notices today, igniting the restructuring of businesses shaped by founder Tom Petters, who remains in jail on federal fraud charges.
The job cuts will affect support and administrative employees at the Minnetonka headquarters and at the West Palm Beach, Fla., office, Andrea Miller, a Petters Group spokeswoman, said late Thursday.
Some people who work at other locations around the United States also will be included in the job reductions, Miller said.
The cutbacks are occurring just one week after Petters was arrested on criminal charges accusing him of masterminding a massive investment fraud scheme, which is estimated to involve more than $3.5 billion.
Petters Group Worldwide, the parent company, has controlling or minority interests in a wide range of businesses.
Doug Kelley, a Minneapolis attorney, is the court-appointed receiver in the Petters case, and he now has the authority to manage the Petters companies with court approval. On Thursday, U.S. District Judge Ann Montgomery rejected an attempt by a group of investment funds to replace Kelley with a New Jersey man, William Procida.
Kelley is facing numerous business issues at Petters Group.
"We are in the process of conducting a financial analysis of the various companies and those that are determined to have value as ongoing operations, we will endeavor to keep going," Kelley said Thursday night.
However, he added, "Other businesses may have to be sold or closed."
Miller said that Polaroid is one of the companies that is developing its survival plans.
Polaroid CEO Mary Jeffries was at Petters Group Worldwide headquarters Thursday to meet with suppliers and retailers to discuss how the company wants to move forward.
After news of the fraud investigation broke, Montgomery issued an order freezing the assets of the Petters companies and granted Kelley the power to control those assets and to operate the companies.
After a Thursday morning court appearance, Kelley said he would be "going to the various banks to make sure we have money for the daily operating expenses."
Kelley said he will unfreeze the Petters assets and work with company executives and outside business experts to save as many of the business activities as possible.
"If they are ongoing functions and corporations, they would have much more value than if they were just liquidated," Kelley said.
In Polaroid's case, Jeffries said: "We continue to ship products to our retail partners and to work with our suppliers and contract manufacturers to fulfill retailer demand."
In a prepared statement, Jeffries, a former No. 2 executive at Petters Group Worldwide, said that Kelley's appointment was a "positive step." She added that managers at the Petters companies can work with Kelley to "best preserve the interests of employees, suppliers and creditors."
'Absolutely no synergies'
Charles (Mel) Gray, a professor of business economics at the University of St. Thomas, said the Petters companies are an "unrelated" collection of businesses. "I see absolutely no synergies there," Gray said.
Petters acquired Polaroid for about $426 million in 2005; the company is now remaking itself with new products such as the Polaroid Pogo instant mobile printer.
Petters also owns all of the voting shares of Sun Country Airlines, which filed for Chapter 11 bankruptcy protection on Monday. It is not subject to the receivership. Sun Country executives will be responsible for finding financing and investors to keep the Mendota Heights airline aloft.
Petters is also known for his Petters Warehouse stores, which sell everything from shoes to furniture at a discount. The merchandise comes from many sources, such as bankruptcies, customer returns and discontinued product lines.
Tom Petters, 51, began selling stereo equipment as a high school student in St. Cloud. As CEO of Petters Group Worldwide he collected an array of investments. In July, be bought assets from Bloomington-based Metropolitan Media Group and has been publishing magazines under the company name Great Waters Media. Miller said she could not comment on the future of that company "because of the ever changing environment that we are in right now."
Petters, who's in federal custody and faces multiple criminal charges in the alleged investment fraud scheme, resigned his position with Petters Group nearly two weeks ago after federal agents raided his home and Minnetonka business headquarters. Employees were sent home Sept. 24 as federal agents combed the offices for evidence in their criminal investigation.
Kelley said that one of his first acts will be hiring several business consultants to help him "maximize the ongoing nature" of Petters' businesses.
"I have had many discussions with creditors and I have solicited their input as to those experts," Kelley said. He is being assisted in his receiver role by attorneys from Lindquist & Vennum in Minneapolis.
In the short term, Gray said the Petters managers need to "perform at the highest level" possible. But he added that Kelley and his outside business experts will need to evaluate those key leaders and their ability to lead Petters' businesses on a continuing basis. In addition, he said, one of Kelley's most-important actions will be deciding which businesses should remain under the Petters Group umbrella.
While Kelley has considerable authority, he couldn't "sell off the Polaroid name without consulting with the court," said Kevin Hofman, a partner with the Halleland, Lewis law firm in Minneapolis, which is not a party to the Petters case.
Hofman said Kelley would need help from Petters executives and "employees to keep the companies moving forward to preserve the value of the assets."
Petters' arrest, the guilty pleas of three of his associates and the magnitude of the fraud case have obliterated a sense of normalcy at Petters' companies. But Jeffries said that the court's receiver appointment creates a "governance and legal structure" that allows Polaroid executives to work with Kelley on the steps needed to move the business forward.
Liz Fedor • 612-673-7709
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