The board of directors for Mountain Equipment Co-op, Canada's largest consumer co-operative, says it has unanimously approved a deal for a private investor to acquire MEC's assets, including the majority of its retail stores.
The Los Angeles-based Kingswood Capital Management is buying the outdoor goods retailer through the Companies' Creditors Arrangement Act (CCAA) — legislation that allows financially troubled companies to restructure. Financial details of the transaction weren't disclosed.
Last year, the retailer detailed financial problems caused by slow sales, inventory backups, supply chain problems and ever-increasing online competition. The retailer lost $11.487 million in 2019 on sales of $462 million, according to financial statements audited by KPMG and posted on MEC's website.
MEC said the acquisition is necessary to ensure a future for the retailer and that its financial struggles had been exacerbated by the disruption of the COVID-19 pandemic.
MEC's board chair Judi Richardson called it a "difficult decision" in a release.
"Despite significant progress on a thoughtful turnaround strategy undertaken by new leadership, no strategy could have anticipated or overcome the impact of the global pandemic on our business," Richardson said.
"Today's announcement, including the transition from a co-operative structure, is creating a positive path forward for MEC."
Richardson said the new organization will continue to use the MEC name and brand.
Staffing cuts imminent
Nova Scotia-based Eric Claus will become the retailer's new chief executive officer, replacing Phil Arrata.
Claus, who says he's a member and has shopped at MEC frequently, said Kingswood is committed to keeping the most stores open and committing to retaining a large percentage of the workforce — at least 17 of the 22 locations across Canada open, and 75 per cent of the workforce.
"It's easy to talk about numbers and stores, but it's people and it's lives. Families. It's a very emotional thing," Claus said. "It's obviously going to be a difficult time."
He says the decision about which stores remain open should come soon, saying it's "not going to be a long and drawn out process."
"Given who we are and what we know of the business and how it operates and the culture, and bringing our Canadian element to it will help ensure that the brand will last a long time," Claus said.
Will I get my $5 share back?
The Vancouver-based outdoor gear and clothing retailer was formed in 1971. It is Canada's largest consumer co-operative with over five million members.
News of its acquisition Monday prompted many members of the co-operative to wonder whether they would get their co-operative shares — about $5 — back.
During the transition from a co-operative to a private company, members would have to claim themselves as creditors to stake a claim on their $5 shares.
But Claus says its "highly unlikely" that members would get their share value back.
"Like in any business, if it's a co-operative or another, equity ranks at the bottom of the list," he said. "I'm sure there'll be some people that won't be happy they lost their $5, but I think the co-op's given them over the years a lot more value than $5."
He says the company is still hoping to find a way for membership to have value, and has committed to remaining involved in the community.
"Hopefully as the new stewards of the brand.. members going forward [will] stay with MEC and continue to get value out of it."
MEC has successfully obtained court protection under the CCAA proceedings. This will allow MEC to continue operating its retail business while the acquisition is completed.
The sale is still subject to court and regulatory approvals but is expected to close by the end of the year.
At the end of the transaction, MEC will be a privately owned company. MEC says the co-op will continue to exist for a period of time after the sale completes but will no longer be operating a retail business.