Westwood-area financial services firm B. Riley announced Monday that it has sold a majority stake in Great American’s valuation and clearing business for nearly $400 million. The move is aimed at reducing debt at the company, which is struggling with the aftermath of the deal. It turned sour.
Under the agreement with Oaktree Capital Management, the company will receive approximately $203 million in cash and a 47% stake in a new holding company with Oaktree, valued at approximately $183 million. It will be. Oaktree, a Los Angeles-based global investment manager, specializes in distressed assets.
Bryant Riley, Chairman and Co-Chief Executive Officer of B. Riley, said: “This transaction is an important step in our plan to reduce debt while reinvesting in our core financial services business.”
B. Riley shares rose 25% to $5.52 in early morning trading on the Nasdaq.
The company’s stock price has fallen more than 90% since last year when it undertook a $2.8 billion executive-led acquisition of a franchise group in Delaware, Ohio, which operates retail stores such as Vitamin Shoppe and Pet Supplies Plus. .
Franchise Group’s sales have slumped, its bonds are rated junk, its founder Brian Kahn was implicated in the collapse of hedge fund Prophecy Asset Management, and federal prosecutors say investors have lost 294 million yen. He claims he defrauded him of $1,000.
B. Reilly took on $600 million in debt to undertake the deal and lent Khan $200 million to set up Franchise Group and take it private. Most of the loans were secured by franchise group stock. B. Riley has about $1.9 billion in debt, including $380 million related to deals that preceded Monday’s deal with Oaktree.
The Securities and Exchange Commission has investigated the company’s relationship with Mr. Khan, 50, who has resigned as chief executive officer of Franchise Group but has not been charged with any crime and denies any wrongdoing at the company. A subpoena was issued to Mr. B. Reilly to investigate.
Prophecy co-founder John Hughes pleaded guilty on November 2 to conspiracy to commit securities fraud.
Mr Riley, 57, has denied knowledge of any alleged wrongdoing at Prophecy. An outside law firm also concluded that neither he nor any other staff at the financial services firm were involved in, or had knowledge of, any wrongdoing at Prophecy, which has offices in New York and South Carolina. Ta.
But the scandal threatens Mr. Riley’s 27-year-old company, which provides merger and acquisition advice, stock offering handling, investment research and other services to primarily small- and mid-capitalization client companies.
B. Riley cut its investment in the franchise group by up to $370 million in August and expects to post a loss of up to $475 million in the second quarter when it files delayed financial results. The company has been in the red for the past two years after posting record profits and sales in 2021.
To conserve cash, B. Riley suspended the $27 million in dividends it paid to its founders last year and renegotiated some debt. Riley has also proposed taking his company private for $7 per share, which is being considered by a board committee.
Although B. Riley primarily provides financial services, it has also invested in consumer companies, starting with traditional internet service provider United Online in 2016. The company also acquired and repositioned brands from faded apparel companies, including the girls’ clothing brand Justice, which is now sold at Walmart.
The Great American deal is part of a debt reduction strategy that also includes the sale of apparel brands, but details have not yet been announced.
B. Riley Financial was formed in 2014 through the merger of Riley Private Limited and then-publicly traded Great American.
