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Black Diamond buys Sun World for $127 million

When Sun World International Inc., in Bakersfield, CA, went on the auction block Thursday, Jan. 13, the bidding opened at $95 million, with Black Diamond Capital Management LLC, a Lake Forest, IL-based investment group and a major Sun World bond holder, as the stalking horse bidder.

But other investors were also very eager to add Sun World to their portfolio " so eager that at the end of the day, the winning bid " from Black Diamond " came in at $127,750,000.

Sun World President and CEO Tim Shaheen was elated. In a telephone interview with The Produce News immediately following the bankruptcy court?s approval of the sale on Friday, Jan. 14, he said, "I tell you, it was an entertaining day. Yesterday afternoon was good for about a $30 million increase [over the initial Black Diamond offer]."

The active bidding and the size of the final ticket show that "there was strong interest? in Sun World on the part of two other prospective buyers, said Mr. Shaheen. "It is a great business. It is a strong business. As you can imagine, to go from where we were to where we ended up, there was definite strong interest in this."

He did not identify the other two bidders. "That is not going to be public to my knowledge," he said, but he did say that unlike Black Diamond, neither of them were major Sun World bondholders.

Black Diamond, too, is pleased with the outcome of the auction. In a Jan. 14 statement, Christopher Kipley, a partner at Black Diamond, said, "Black Diamond Capital Management is pleased that the private equity distressed debt fund it manages was successful in yesterday?s bankruptcy auction of Sun World International with a winning bid of $127,750,000. As the stalking horse bidder in the auction, we recognized early on the value potential of this leading agricultural company and we look forward to capitalizing on this opportunity going forward.

?We intend to build upon Sun World?s core strengths and its excellent organization so that the company can continue to serve the needs of its customers," Mr. Kipley added.

Black Diamond, a privately held alternative-asset management firm with approximately $5 billion under management, had no additional comments, according to Jeffrey Lloyd of Sitrick & Co., a spokesman for the Black Diamond group.

The sale of Sun World to Black Diamond is still "subject to closing," said Mr. Shaheen. There are "several closing conditions? that need to be met, "but nothing we expect would be problematic." He expects the closing process to take from two to six weeks.

With the bankruptcy judge?s approval of the sale, closure will constitute the final step in Sun World?s emergence from Chapter 11 bankruptcy, Mr. Shaheen said. "The judge has approved it already, so the closing of this would be the final step to emerge. Everybody is pretty excited. It has been a long time."

Sun World filed for Chapter 11 bankruptcy protection in early 2003. In December 2003, Sun World?s financially troubled parent company, Cadiz Inc., effectively divested Sun World by putting its ownership in trust. Cadiz acquired Sun world in 1996 following an earlier Sun World bankruptcy.

Asked whether he expected Black Diamond to leave the existing management in place, Mr. Shaheen replied, "I?ll let that direction come from them. I don?t want to speak on their behalf. From Sun World?s perspective, we are doing our best to accommodate the new group and trying to work with them to see the closing.

?[Sun World] has been through a lot over the last 10 or 15 years in terms of changing ownership and the like," he continued. "It is a very resilient and innovative company. I think operationally it just has continued to do very well because of the employees and vendors and customers.

?I think it is unfortunate we had, let?s say, challenging capital structures," he added. "That was the case when it was in bankruptcy in the mid-1990s. That was the case when Cadiz acquired it. Probably the most significant thing the new party would bring is to provide the financial strength for the company to continue to execute its business plan."

Since being placed in trust, Sun World "has been operating effectively in a trust overseen by me and the board of directors," Mr. Shaheen said. "The creditors have not been involved in the management of the business at all. It was effectively an estate, and the management of the estate still is under the bankruptcy court."

The estate consisted of "a number of participants," including bondholders and trade creditors, he said. "There are a lot of parties to the estate." But management has remained under the direction of essentially the same board of directors and officers Sun World had prior to its filing for bankruptcy. The appointment of an administrator for the trust "was never contemplated," he said.

That is very different from what happens in many bankruptcy cases and "very different from the first time Sun World was in bankruptcy? in 1994-1996, when "there were a lot of contested issues? and the court appointed an administrator.

This time around, it has been "a very consensual process " amicable, if such a thing can be handled amicably, he said. "The dialog with creditors continued to be wide open. Everybody was working toward a consensual plan."

The process "had its moments," he said, "but in court, with everybody involved, it was a session of "kumbaya.' "

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