Regis to buy back stake in Trade Secret

In the heart of the recession, Edina-based Regis Corp. sold off its struggling Trade Secret salon division as part of a cost-cutting move. Now Regis is making a play to dig Trade Secret out of bankruptcy and recover the millions it is still owed.

Trade Secret's parent company, Premier Salons Beauty Inc., filed for Chapter 11 protection Tuesday in U.S. bankruptcy court in Delaware. In court filings, Premier CEO Brian Luborsky named Regis Corp. as willing to bid $45 million.

Premier Salons, owned by the Luborsky family, is based in Markham, Ontario. It operates about 1,000 salons across the United States and Canada, including luxury spas and salons in such department stores as Macy's, Saks and Sears. The bankruptcy proceedings only involve the roughly 640 Trade Secret salons.

In bankruptcy parlance, Regis is considered the "stalking horse" bidder -- an interested buyer who will make the first offer to ensure that the distressed company's assets don't get underbid.

Regis Corp. CEO Paul Finkelstein put Regis' chances of succeeding at next month's auction at "90-plus percent." He said Regis is not putting up any cash, and will immediately return ownership to Luborsky once the deal is approved.

The motivation behind the move: Trade Secret still owes Regis $32 million, as part of the February 2009 sale, which was mostly a stock transaction.

Trade Secret also carries Regis' hair care products in its salons and pays a portion of Regis' warehouse costs.

Trade Secret needs to shed a third of its salons to trim down to a 400-store operation, Finkelstein said. Closing underperforming salons would generate positive operating cash flow of $1 million a month, "compared to losing money today," he said.

Finkelstein said Trade Secret intends to pay "100 cents on the dollar" to its creditors, which include $1.2 million to Procter & Gamble and $1.1 million to L'Oreal Group.

Regis, the world's largest owner, operator and franchiser of hair care products and salons, operates 12,700 stores, including Supercuts, Cost Hutters, Regis and Hair Club for Men and Women.

Regis stock closed down almost 3 percent Tuesday, at $14.91.