Horizon the sole bidder for Hobbico's RC business

Horizon the sole bidder for Hobbico's RC business

Biz tips? Email Ben Zigterman at bzigterman@news-gazette.com

CHAMPAIGN — Horizon Hobby was the top bidder this week for Hobbico's remote-control business, agreeing to buy the hobby-product distributor for $18.8 million.

Horizon had reached an agreement last week to buy Hobbico's RC business for that amount and was apparently the only bidder.

Hobbico, which filed for Chapter 11 bankruptcy protection in January with the goal of finding a buyer, held an auction Wednesday in Delaware.

The agreement with Horizon includes the purchase of Hobbico's Great Planes and Tower Hobbies divisions, as well as its brands including Axial and Arrma.

The purchase won't include Estes, United Model, Revell US or Revell Germany.

Separately, a corporation called Estes Industries LLC was the successful bidder for Hobbico's Colorado-based Estes subsidiary with a purchase price of $7 million, up from the $6 million agreement that had previously been reached.

Estes Industries was alternatively identified as The Langford Group in a transcript of the auction, which consisted of a single round of sealed bids.

The remaining units of Hobbico are still up for auction, but that process is temporarily on hold, according to the transcript.

"We received a number of bids that overlap and contained other terms that we need to discuss with the consultation parties," said Nick Miller, who is representing Hobbico. "So we are adjourning the auction with respect to the remainder until sometime in the near future."

The successful bids still need to be approved Monday at a bankruptcy court hearing, and there's already been one objection filed to the Horizon Hobby deal.

A group of unsecured creditors question the Horizon Hobby deal because one of its board members — Rusty Freeland — also works for a law firm that has represented Hobbico.

Freeland is a member of Armory Capital, a Champaign-based investment firm that was one of the buyers of Horizon Hobby in 2013, and also an attorney with and shareholder of the Meyer Capel law firm in Champaign.

Horizon Hobby disclosed Freeland's connection on March 23, when its stalking-horse bid for Hobbico was announced.

Freeland said he spends the vast majority of his time working for Armory, hasn't disclosed any information about the Hobbico sale process to Meyer Capel and hasn't received any confidential information from Meyer Capel about Hobbico.

"To the best of my knowledge, I have not worked on any matters for Hobbico while I have been a shareholder of Meyer Capel for over 20 years," Freeland wrote in court documents.

Nonetheless, the group filing the objection says Horizon should have disclosed the connection sooner.

"This lack of disclosure created, at the very least, the perception of collusion and an unfair advantage to Horizon as a potential purchaser," wrote Katherine Good, the group's lawyer. "Such a perception, in turn, potentially chilled bidding, resulting in no competing bids."

Because there were no other bids, the group also questioned whether the auction succeeded in attracting a high-enough sale price.

Hobbico had been asking for at least $22 million for the units Horizon wants to buy.

"It is unclear whether Horizon's purchase price...constitutes 75% of the appraised value of the assets, which serves as a general benchmark for what is 'fair and valuable consideration,'" Good wrote. "Horizon's final bid is only 85% of the minimum bid."

Freeland, Hobbico and Horizon could not be reached for comment Friday afternoon.

In a filing late Friday, a lawyer for Hobbico pushed back on the allegations.

"The marketing of the Debtors' assets was thorough, the Auction held on March 28 was fair, and all negotiations between the Debtors and Horizon were conduction at arms' length and in good faith," Matthew Talmo wrote. "There was no fraud, collusion or chilling of bids."

Hobbico and Horizon Hobby were both formed in 1985, and are among the top 25 largest employers in Champaign County, according to the Champaign County Economic Development Corp.

Last year, Hobbico said it employs 415 people in the county, and Horizon Hobby reported 341 employees.

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