Reading Chapter 11
Suppliers could suffer devastating blows while Hines Horticulture reorganizes.
September 18, 2008
The rest of this year, we will be watching to see how Hines Horticulture emerges from Chapter 11 bankruptcy protection. The company could be up for auction as soon as November, and the repercussions could be huge. Hines owes millions to prominent industry suppliers, who if unable to collect, could be put in a very precarious position. These suppliers will have no choice but to pass their recovery costs onto other growers.
When the news broke, we received an overwhelming response from readers on www.greenhousegrower.com, laying blame to the box stores for putting our entire supply chain at risk, as well as lenders and brokers who offer extended terms that allow highly leveraged giants to operate and compete against growers who pay their bills and don't take on a lot of debt. The rest of the industry ends up subsidizing companies like Hines, they say.
Based in Irvine, Calif., Hines Horticulture is one of the nation's largest growing operations with seven facilities spanning 4,000 acres of outdoor and greenhouse production in Arizona, California, Texas and Oregon. Hines sells plants to 1,180 customers representing 6,670 retail outlets, landscapers and rewholesalers. Home Depot accounts for 43 percent of sales, with Wal-Mart and Lowe's following at 15 percent and 14 percent, respectively. Last year's net sales were reported at $215 million.
Like most growing operations, Hines started out as a family business and was founded in 1920 by James W. Hines Sr. in San Gabriel, Calif. More than 50 years later, the business was sold to Weyerhaeuser in 1976 and has been owned by a series of investors ever since. Hines emerged as the leader in the grower consolidation movement in the late '90s, acquiring greenhouse and nursery operations on both coasts. Venture capitalist owners took the company public and Hines became the first growing operation to be traded on the New York Stock Exchange under HORT.
One fatal mistake was acquiring those operations at top-market value. Hines never saw the return on those investments. The past few years have been a period of downsizing and divestment, with Hines selling the East Coast facilities and taking its stock off the market.
In our April issue, the company's executive team shared strategies for turning the company around and centralizing activities like purchasing and transportation. They seemed to be on the right track, but it was Hines' board of directors who decided to file for Chapter 11 bankruptcy protection in August. Reasons cited for financial distress were: inclement weather during the spring season, a weaker consumer environment, pricing pressure from its largest customers and significant increases in raw materials and fuel.
Chapter 11 promotes debtor rehabilitation and a process for creditors to be treated equally. In a letter to employees, CEO Jim Tennant said the goals of the reorganization are to gain liquidity to continue operations and reduce debt. He said Hines will have cash to pay employees and for goods and services with up to $62 million in debtor-inpossession financing.
The last two major bankruptcies we followed were retailers - Pike Family Nurseries and Frank's Nursery & Crafts. Growers topped both creditors lists. While Frank's went away, most of Pike was purchased by Armstrong Garden Centers in California. Having a single major purchaser is more efficient than selling off each property.
The most logical single purchaser is Color Spot Nursery in California, which purchased Powell Plant Farm in Texas last year. Hines also could be divided up and sold to many nurseries. One thing we do know is Hines will need nursery people, not Wall Street people, to pick up the pieces to move forward.