Corgi sells namesake division to Hornby

By Staff -- Playthings, 5/5/2008 1:46:00 PM

HONG KONG—Corgi International Limited reported late last week that sold its flagship Corgi collectibles die-cast business to Britain’s Hornby Hobbies Ltd., including the "Corgi" brand name, tooling and existing inventory for a combined $16.6 million.

The deal put a $15 million price on Corgi’s name and tooling, and another $1.6 million on its existing inventory. The company’s collectibles die-cast business generated sales of approximately $13.0 million for the fiscal year ending March 31, 2008, and did not report profitability as a separate entity. According to Corgi, the division “has been constrained recently by a shortage of working capital.”

“We believe that this transaction is a prudent move in the current economic environment and will allow us to focus on our core pop culture business and the younger collector,” said Michael Cookson, Corgi’s CEO. “The sale of the Corgi collectibles provides needed capital to properly finance the strategic growth categories and better enables us to leverage our diverse and valuable licensed entertainment properties, broad distribution channels and innovative products."

Corgi International Limited will continue to conduct its principal licensed product and distribution businesses under the brand names PopCo and Master Replicas Inc., including the sale of Harry Potter and James Bond products and the innovative hydrogen-powered H2go Car.

The company is expected to officially change its corporate name within 90 days of the sale transaction.

Financial woes

Corgi said that after the closing in January of its more than $30 million asset-based credit facility with Burdale Financial Limited, it had “an unexpected working capital shortfall,” due to tighter credit limitations, poor holiday sell-through results and retailer financial difficulties. In order to improve its liquidity and working capital, the company recently completed a number of transactions:

• In April, Corgi sold its Cards Inc. trading card distribution business an inventory to Esdevium for just under $3 million.

• Also in April, the company refinanced is Burdale credit facility with a more flexible $16 million accounts receivable financing facility with CoFace Receivables Finance Ltd. The company will also resume its production finance facility with Gateway Trade Finance LLC, which allows additional working capital for bringing products to market.

Jack Lawrence, the Company's Chief Operating Officer and Chief Financial Officer, said: "While the aggregate credit capacity of the CoFace line is less than the Burdale credit facility, we believe that the overall terms and flexibility of the CoFace credit facility will greatly improve the Company's working capital position."

The company has used proceeds from the sale to Hornby of the Corgi collectibles die-cast business to repay its other lenders, Barclays Bank PLC and Ropart Asset Management Fund LLC, approximately $4.5 million in the aggregate, and to repay in part various trade creditors.

After the Corgi sale’s closing, the company is expected to have approximately $5 million of indebtedness for money borrowed down from a peak in January 2008 of approximately $22.4 million.

In addition, the company is proposing a global workforce reduction of approximately 65 employees, or about 50 percent of its staff, a number of whom will join Hornby. The company is expected to incur an accounting charge of approximately $250,000 as a result of such proposed changes.

Lawrence added, "As a result of the foregoing actions, while the company will continue to need and look for additional financing to increase its working capital, the company's immediate liquidity and working capital has significantly improved, allowing the company to focus on executing its business plan for fiscal year 2009."

For is fiscal 2008, the company said it does not expect to achieve the results provided in its former guidance due to lack of liquidity, the continued tightening of the credit market and poor holiday sell-through.

Hornby is Britain's best known model train maker.