Dive Brief:

• Forever 21 has a deal to sell itself in bankruptcy to a group comprised of the brand licensing specialist Authentic Brands and mall operators Simon Property and Brookfield.
• The prospective buyers have put together a stalking horse bid for Forever 21 for $81 million, according to court papers. The bid would serve as a baseline for an auction for Forever 21 and includes a breakup fee of $4.7 million and expense reimbursement of $1 million if Forever 21 accepts an alternate deal.
• The retailer proposed to the court a bid deadline of Feb. 7 and an auction, if necessary, by Feb. 10.

Dive Insight:

Forever 21 reportedly started talking with landlords, and Simon and Brookfield specifically, about buying a stake in the retailer before it even filed for bankruptcy last year. 

In September, days before the company filed, Bloomberg reported that the talks with landlords had collapsed. That sent Forever 21 into Chapter 11 without a plan, without certainty of how it would exit bankruptcy. Bloomberg at the time reported that the negotiations touched on ownership and leadership at the retailer as well as locations to close. 

Those retailers that have successfully reorganized and emerged from bankruptcy by and large have gone in with pre-negotiated plans with creditors and other stakeholders for revamping the company and its finances. (As the cases of Payless, Gymboree and others have shown, though, such plans and smooth exits from bankruptcy aren't guarantees of long-term success beyond Chapter 11.)

Without a plan, Forever 21 faced possible liquidation. Toys R Us was a dramatic case of how that can happen. The toy retailer entered bankruptcy with hopes of rightsizing its business during the process. But it failed to find investors to provide exit capital and back a reorganization plan, and then defaulted on its bankruptcy loan after a miserable holiday season. Lenders pulled the plug, and the rest is history. 

Others, like Bon-Ton and Barneys, hoped to find a buyer to keep the company operating past Chapter 11 after a reorganization plan failed to materialize but ultimately saw their physical footprints liquidated and intellectual property sold off. Authentic Brands, which has grown significantly amid the retail apocalypse and its many IP auctions, snapped up Barneys' assets in November. Forever 21, as its founding family held on to control, faced possible liquidation in bankruptcy, according to Bloomberg Businessweek.

Simon and Brookfield, as major landlords to Forever 21, have a stake in keeping the fast-fashion retailer and mall staple running. Diminished though it might be, the banner has a deep history and could still be driving traffic to those malls. The retailer rented nearly 100 stores from Simon in the U.S., representing almost 1.5 million square feet and 1.4% of Simon's domestic base rent, according to securities filings.

If the stalking horse bid for Forever 21 succeeds, it wouldn't be the first time landlords bought out a retailer to protect their malls. In 2016, apparel retailer Aeropostale was sold in bankruptcy to a consortium of landlords, a deal that provided a model for Simon and Brookfield in their effort to buy Forever 21.