Critical deadline near for retailer

The fate of Gottschalks Inc. hangs in the balance as the 105-year-old retailer approaches a critical deadline next week.

Would-be buyers must submit proposals by Wednesday. If none steps forward, the Fresno-based company, which went bankrupt in January, will go to a consortium of liquidators who are ready to sell off the merchandise and shut down the business.

One ray of hope was a report late Thursday by the Bloomberg financial news service that three firms are examining the department-store chain's books and could be willing to keep all or some of its stores open. Any that file proposals next week would have to bid for the company at an auction March 30.

But one industry expert is skeptical, pointing out that the liquidators already have the inside track; under terms of a deal between Gottschalks and the consortium, any other suitor would have to pay a premium for the company.

Howard Davidowitz, a New York retail consultant and investment banker familiar with Gottschalks, said it's common for rumors of prospective buyers to swirl around bankrupt companies, but rare for bids to materialize.

"Look at Mervyn's, look at Circuit City, look at Linens 'n Things," Davidowitz said. "They all had names floating around, but somehow, nothing ever happens."

Bloomberg, citing unnamed sources, said the suitors are Golden Gate Capital Corp. of San Francisco; Illinois-based GK Development Inc.; and El Corte Inglés, a Spanish retail conglomerate that owns about 16 percent of Gottschalks' stock. None of the companies, including Gottschalks, would comment on the Bloomberg report.

Gottschalks operates 58 department stores and three specialty apparel stores in six Western states, the majority in California. Two of the department stores are in Modesto. The company also has a large distribution center in Madera.

Retail industry experts have said the same dismal economy that's walloped the retail industry, and sent some companies into bankruptcy, makes it unlikely for a would-be buyer to get the credit needed for a purchase to keep Gottschalks intact.

All players boast solid standing

The names floating around Gottschalks all have strong credentials, however.

El Corte Inglés, which sold its nine-store chain of Harris department stores in Southern California to Gottschalks in 1998, is Spain's largest retail conglomerate, reporting gross profits of more than $1.9 billion in 2007.

The company, based in Madrid, gained its 16 percent stake in Gottschalks as a result of the Harris sale. An El Corte Inglés subsidiary, The Harris Co., is listed in bankruptcy court documents as Gottschalks' largest unsecured creditor, holding a note for $16.1 million.

El Corte Inglés operates department stores, supermarkets, convenience stores, a travel service and do-it-yourself stores in Europe and the Middle East. The company also is involved in insurance, retail consulting, telecommunications, movie theaters and textbook publishing, according to the business research firm Hoovers Inc.

Golden Gate Capital describes itself as an investor group managing $9 billion in assets. Among its bankruptcy acquisitions was a 2004 deal in which it purchased catalog retailers Spiegel and Newport News in a partnership with management of the two companies. In 2007, the company acquired a controlling interest in Express stores from Limited Brands.

GK Development Inc. is a real-estate development company whose portfolio includes regional retail malls, neighborhood shopping centers and office and industrial properties in Florida, Illinois, Mississippi, North Dakota, Iowa, Texas, Colorado and Montana.

"I'm not saying it's impossible — anything is possible, particularly with El Corte Inglés in the picture," Davidowitz said. "But if you look at the record of what's happened in all these situations, it always seems to end in the same result, and that's liquidation."

The consortium of liquidation firms that have first claim on Gottschalks also was uncontested in bids to liquidate Mervyn's and Circuit City and was joined by two other asset-disposition companies as the only bidder in the liquidation of Linens 'n Things.

Liquidation could come April 1

If no other bidders qualify for the auction, the liquidation could be approved by a bankruptcy judge as early as April 1.

Once the order is signed, going-out-of-business sales at Gottschalks' stores could start the next day. The agreement requires the liquidators to wrap up the sales and be out of the stores by July 15.

In the event of liquidation, Gottschalks' real-estate assets — its store leases in shopping centers in California, Oregon, Washington, Nevada, Alaska and Idaho and five of the store locations the company owns — would be disposed of in another auction.

It's uncertain how much money a liquidation of Gottschalks' inventory, fixtures and equipment could generate to repay the company's creditors.

Gottschalks officials estimated the value its assets, including inventory, equipment, supplies and real estate, at about $256 million. In court filings the company reports its liabilities, including debts for secured and unsecured claims, at more than $130 million. That is in addition to the $125 million loan made by General Electric Capital Corp. to Gottschalks for its continued operation during bankruptcy.

Gottschalks' creditors aren't the only ones watching and waiting with interest. A potential liquidation will have implications for Gottschalks 5,200 employees and its customers.

Earlier this year, in conjunction with its Chapter 11 bankruptcy petition, Gottschalks notified the state of 339 potential layoffs at its corporate headquarters in north Fresno and 105 layoffs at its distribution center in Madera.