Lexpert Magazine

LEXPERT MAGAZINE | JULY/AUGUST 2017 35 | ART OF THE DEAL | and soball bats). en, in 2014, it paid US$330 million for the baseball operations of Easton-Bell Sports. at made Bauer the largest sports equipment manufacturing company on the planet. Barely two years later, Wall got his su- preme test as general counsel. "I never had to face anything of this magnitude," he recounts. "We seemed to be going strong. en we hit the perfect storm of 2016." Off-side PSG's financial slide seemed to begin on January 8, 2015, when the company un- veiled its strategy to open its "Own the Moment" hockey experience retail outlets. It opened the first such store in Boston that summer, and planned up to 10 in all in hockey-crazed cities like Toronto, Montré- al and Chicago. But Davis didn't count on the pushback from the retailers that PSG relied on, who were perturbed by next-door competition from their very own supplier. News only got worse for PSG. ere were a string of bankruptcies among major US sports retailers carrying its products. en, on March 22, 2016, as dark clouds gathered and its hockey sales dipped 19 per cent (and CCM's rose 18 as miffed retail- ers switched to competitors), PSG's CEO skated away. e company, with a market cap of US$181 million, was also shoulder- ing $440 million in debt. And then there were those shareholder lawsuits accusing PSG of misleading inves- tors: one, filed August 2016 in New York by the Plumbers and Pipefitters National Pension Fund, accused PSG of "channel stuffing" — that is, forcing its retailers to order more sports gear than they needed so PSG could falsely pad its net income and hide the failing state of its business. A Call to Action Stikeman Elliott LLP has had a deep rela- tionship with PSG ever since the company was acquired by Raustan and Kohlberg. e firm helped with acquisitions and its listing on the TSX. Stikeman's point-man, leading the Canadian legal team during PSG's struggles, was partner Jonah Mann. When PSG ran into trouble, "it wasn't like we heard, 'Houston, we have a problem!'" says Mann, who works in Stikeman's cor- porate group in Toronto. "It was incremen- tal. Almost like a ball of yarn." A tangled ball. Mann had only to look at his office neighbor to find one of the first people he wanted on his team to help PSG: Ed Waitzer, head of Stikeman's corporate group. "I didn't have the relationship" with PSG, says Waitzer. "But I think the board took some comfort in having someone [with more experience] involved." For Mann and his team, the gloomy news now fast-flowing out of PSG in the summer of 2016 was a bugle call to action. "We recognized in August that we needed to give the board as many options as pos- sible in terms of making decisions to pre- serve the business." Early on, those options were anything from new financing or debt restructuring to possible M&A action. "One of the unique aspects of this transac- tion was working on multiple streams early on and trying to bring to the board as many options as possible to try and deal with the circumstances, which were fluid." Adds Waitzer: "e other work stream that was important was [that PSG] was still a public company. Serious allegations had been made, which the company set up ap- propriate procedures to investigate." It was critical Stikeman help PSG maintain trans- parency with regulators from both the SEC and the OSC, as well as with auditors "who had expressed misgivings as to whether they were going to be in a position to issue an audit." "e death knell" for PSG, he continues, would have been if an auditor resigned or regulators launched proceedings "before we were in a position to do what was neces- sary to put the business in capable hands." … And Along Comes Sagard PSG was lucky in some ways, says Waitzer. "Public confidence was going in the wrong direction. And that can easily turn into a death spiral. We put [PSG] into court pro- tection to see if we could find a buyer. e lucky part was that Sagard, independently of all this, had by this time taken an equity position in the company before it went into a spiral. Sagard is effectively a subsidiary of Power Corp. Power Corp is the kind of in- vestor that is long-term and well capitalized and is not afraid of shorter-term market cycles or opinions. "So," says Waitzer, "we at least had one bidder with a stake in PSG who understood the situation and was prepared to step up and put forward a stalking horse bid." at set a floor on the value of PSG's physical and intellectual assets. Moreover, with the sagacious reputations of Sagard and Fairfax, it gave potential competitive bidders some solace that PSG was not a lost cause. "Without Sagard," contends Wait- zer, "there's a real question as to whether we would have had a bid at all." Trotting out the Stalking Horse Taking the legal reigns of Sagard's stalking horse bid was a team led by Blakes' John Tuzyk in Toronto. His firm had gotten in- volved with Sagard in early 2016 when the company had reached 10-per-cent owner- ship of PSG's stock and, under Canadian securities regulations, had to file an early- warning disclosure report of its position. e news that PSG was delaying its au- dited financial statements and conducting

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