VANCOUVER — A B.C. Supreme Court judge has ruled in favour of a deal for a U.S. private equity firm to take over MEC and see the outdoor retailer shed its co-op structure, just shy of its 50th birthday. 

The ruling on Friday, part of MEC’s creditor-protection proceedings, allows the retailer’s board to proceed with a deal with Kingswood Capital Management. Board members unanimously supported the move, arguing they had exhausted all other alternatives to keep the retailer going in the face of financial troubles exacerbated by the COVID-19 pandemic. Justice Shelley C. Fitzpatrick also denied requests for a two-week delay from several groups, including one called Save MEC, which was scrambling to cobble together an alternate proposal that would keep MEC a co-op.

“I am granting the SAVO [sale approval and vesting order], which will approve the transaction with Kingswood,” Fitzpatrick said in court Friday morning, after dismissing all applications by opposing parties. She said reasons for her decision would follow later.

Kingswood declined to comment. “The process has run its course,” said Eric Claus, who will assume the chief executive role at MEC after the deal closes, in a statement to The Logic.

MEC’s board of directors, which unanimously approved the deal, said in a statement to The Logic that “the sale strengthens MEC’s finances and core operating business.” The board noted it preserves jobs and many of its retail locations.

Save MEC, meanwhile, met later Friday with its legal counsel to review the decision.

“The court’s decision is deeply disappointing,” the group said in a statement to The Logic.

The group is “working with our friends at Co-ops and Mutuals Canada to understand any legal options – there are fundamental legal principles at stake relating to co-ops.” Co-operatives and Mutuals Canada supports, promotes and unites co-ops and mutual organizations, according to its website, through advocacy and research, among other things. It and the BC Co-op Association had also asked the court for a two-week adjournment.

“The sale of MEC to Kingswood capital absolutely breaks our trust,” the statement reads, adding the group will watch Kingswood closely to make sure it keeps its commitment to retain 75 per cent of active employees.

Before her ruling, Fitzpatrick acknowledged the “passion” she saw during the four days of proceedings, especially that of the members and spokesperson Kevin Harding.

MEC surprised members on September 14, when it announced a plan that would see the co-op taken private by Kingswood, at the time a little-known U.S. private equity firm. The outdoor retailer, which was struggling financially even before the COVID-19 pandemic exacerbated the situation, said it conducted a months-long process seeking alternatives before determining a sale to Kingswood was its best option. It entered creditor-protection proceedings to finalize the deal.

Kingswood will pay between $107.5 million and $110 million cash for MEC’s assets, depending on a working capital adjustment mechanism to be worked out at a later date, and assume at least $40.2 million in liabilities, including $13.2 million in gift-card obligations, according to court documents.

Out of the four final bidders, Kingswood committed to keeping the most stores open, with 17 out of 22, and 75 per cent of active employees on the payroll. MEC’s incoming leadership, including Claus, plans to focus turnaround efforts on stores, as well as product assortment and development. MEC and Kingswood expect the deal to close in the middle of October.

But while Kingswood pushed its agenda forward—even appointing a man with controversial experience to step in as MEC’s president and COO—members galvanized. They formed Save MEC, spearheaded by Harding, and raised more than $100,000 to pay for legal fees. Their lawyers argued the court ought to grant a two-week adjournment so the group could finalize an alternate proposal.

“In the two weeks since they found out about this, they have made great headway in putting things together that may come together as a full package,” one of their lawyers, Peter J. Reardon, told the court Tuesday.

Save MEC had acquired commitments from wealthy individuals for funding between $15 million and $20 million, as well as support from an anonymous group that has “been in discussions” to purchase MEC’s real estate assets for about $90 million, according to various court documents. It also has interest from credit unions and banks, and a Canadian credit-card company, Brim Financial, to generate $7 million to $10 million of additional income through a credit-card rewards program.

The group also remained optimistic about involving member funding to some degree. Harding believes if 25 per cent to 40 per cent of members contributed $10 each, the effort could raise an additional $13.5 million to $21.6 million.

“The steering committee of Save MEC should be given that two weeks to continue with their efforts to put together the package,” argued Reardon, noting they have created a steering committee with relevant professional experience.

“There is … the very real possibility that they will succeed in putting something together that will save their co-operative.”

The member-funded model, though, is one MEC rejected early on in its search for a solution, calling it “impracticable to impossible,” in court documents.

Harding is no doubt an “emotional advocate for MEC,” said MEC’s counsel, Howard A. Gorman, during Monday’s proceedings. Harding is leading a local minority of members who don’t want MEC sold, Gorman said, but that doesn’t change the reality of the retailer’s financial situation.

“The directors would have preferred MEC not be sold. There was no alternative at the end of their process.”

MEC is losing about $1.6 million weekly, lawyers argued, as they pushed for a quick close on the Kingswood offer. A two-week delay would have cost MEC about $4.65 million.

While MEC has received some criticism that its process took roughly 100 days before selecting a buyer, he said, Save MEC proposes it can create a better alternative in 13 to 14 days.

He called it “well intentioned, not closeable, not realistically deliverable.”

Lawyers for MEC, Kingswood and RBC, which is the agent for the credit agreement with MEC, argued against requests for an adjournment made not only by the members’ lawyers, but also those of two landlords whose leases will not be part of the Kingswood deal. The landlords wanted time, in part, to discern if the court-appointed monitor Alvarez & Marsal Canada, which also acted as MEC’s financial adviser during the search for a buyer, ought to be replaced with a different monitor if the dual role resulted in a bias. The judge also dismissed those applications Friday.

The lawyers for those supporting the deal instead called for an urgent approval.

“Things have to happen quickly. There is a lot to be done to get a closing of a sale,” said Kibben Jackson, a lawyer representing Kingswood, on Tuesday.

Kingswood needs the approval to negotiate seriously with landlords and others, he said.

The retail industry is also gearing up for the Thanksgiving and Christmas shopping season.

“The inventory that is supposed to be in the stores for those seasons isn’t just going to arrive at the snap of your fingers,” he said. “There is lead time for that,” and it also requires approval so Kingswood can commit the money for it.

“If this gets delayed any amount of time, suddenly the value proposition here in terms of the sale is eroded very significantly,” he said. “So, there is a real timing issue that is looming over all of this in terms of the business perspective.”

But that rush is “all of their making,” one of the lawyers representing members argued on Wednesday.

“They set the timetable when they entered into this transaction,” said Reardon, “and they did it knowing full well that members weren’t going to like this, members were going to try and do something about it, so we better not give them much time, and they didn’t.”

Kingswood’s lawyer rejected the assertion on Thursday, saying nothing suggests Kingswood would have expected opposition to the application.

“That is absolutely unsupported by the evidence.”