Nautilus snares Universal brand in court bankruptcy auction

In a courtroom auction that in the end drew five industry bidders intent on claiming the name Universal for their own, Nautilus walked away May 12 with the brand and its assets for $2.31 million.
Author:
Publish date:

In a courtroom auction that in the end drew five industry bidders intent on claiming the name Universal for their own, Nautilus walked away May 12 with the brand and its assets for $2.31 million.

Sportcraft was the last out of the 75-minute auction, barely conceding the victory to Nautilus with its last bid of $2.3 million, or $10,000 less, which was the incremental step upward of many bids. Icon Fitness made it to $1.15 million before bowing out. The stalking horse bidder (or first approved bid which others had to beat to be in), True Fitness, stepped out one round before at its highest bid of $1.05 million; its bid submitted to the court in March had been for $500,000. Cybex, the first company to concede a loss and get out of the action, was gone barely before the bidding got rolling, saying "enough" at $650,000. The bidding had begun at $600,000 in the courtroom in the U.S. District Court, Northern Mississippi, where the assets of Flexible Flyer Acquisitions (FFA) have been pieced apart since it filed for Ch. 11 bankruptcy in September 2005.

In a company statement, Nautilus CEO Gregg Hammann said the group of brands it is assembling creates "tremendous potential in our consumer segmentation strategy."

"The Universal brand consistently surfaces as one of the strongest in the fitness category," Hammann said.

Nautilus has not disclosed its strategy for the Universal brand or how it will fit into the current list of company brands. In the statement, the company names its brands as Nautilus, Bowflex, Stairmaster, Schwinn and Pearl Izumi, leaving Trimline off the list. A Nautilus spokesman said that frequent exercisers lean toward Nautilus, Stairmaster and Pearl and those brands are at commercial and specialty; moderate exercisers align with Bowflex and Schwinn, which are mostly available at retail and through direct channels.

Lamar Fitness has been using the Universal name under license for about 18 months for sporting goods and cardiovascular equipment, but said his company had been preparing to move away from it since there was no guarantee of continuing the license. He has been given 90 days to sell off all remaining inventory, he said.

"While we're disappointed we will have to stop using the Universal brand, the things that made us successful with the brand will not change," Lamar Fitness President Kevin Lamar told SNEWS®, "and that was our products, our service and the quality our products had, and our commitments to customers."

In Cybex's case, company CFO Art Hicks told SNEWS® the bid was "to keep our options open," although he said Cybex did not have short-term plans for the brand. Hicks said although the brand had value, the company had higher priorities. Sportcraft's CEO Mike Nalley was unavailable for comment since he was traveling in China; Sportcraft has a line of treadmills that it currently sells mostly through Wal-Mart.

An Icon spokesman said his company wasn't convinced the Universal brand had as much cache with younger users and was worth more than Icon's final bid. Certainly, said spokesman and general counsel Brad Bearnson, Icon could have utilized the brand, "but at what value is the issue."

"It's like going to the races" to make bets, he said. "At some point you have to set your value and not get caught up in the moment."

As of March 31, 2006, Nautilus stated on its 10Q filed with the SEC that it had about $9.5 million in cash and equivalents, not including the potential outlay of the $8.1 million court penalty that could be paid to Icon for what the court determined earlier this year was false advertising. Spokesman Ron Arp told SNEWS® this could push their cash stockpile close to zero by the end of the second quarter, as he said the company had said.

"We have almost no long-term debt and a short-term line of credit, so we have excellent financial liquidity and flexibility," Nautilus spokesman Ron Arp told SNEWS®. "At the end of Q1, we had the amount you mention in cash, but also had some short-term debt, so we had about $1.5 million net borrowings. We said we would have zero to $5 million cash, net of short-term borrowings, at the end of the second quarter."

Universal was founded in 1957 and its name became synonymous with home gym-like strength equipment, nearly turning into a generic term. The Cedar Rapids, Iowa, company's annual sales peaked at $54 million before it went into bankruptcy in 1996 after several ownership changes. That's when production shut down. Flexible Flyer, a toy and scooter company, bought it in 1998 in a bankruptcy auction, where sources said it garnered about $1.8 million. FFA then sold back marketing rights in 1999 to a group in Iowa. Despite some efforts, Universal has been a bit of a lost child since then. 

As a part of the acquisition of Universal assets, Nautilus now has the rights to other Universal trademarks, including Power Pak, Vitamaster, Centurion, and others.

SNEWS® View: Certainly, the Universal brand has a rich history and seemingly has value among baby Boomers, although those younger than 30 may have no relationship to the name whatsoever. Of course, in recent years, it has fallen onto hard times and has been shifted about among owners and managers. Flexible Flyer never did invest in the brand's marketing or product as much as it should have, allowing it to languish badly. We believe Sportcraft would have made the most sense as an owner since it markets to the channels where the name could mean something and product under its name could sell well. Plus, it could have given that company a leg-up into a strength category for sporting goods it now seems to be seeking. Why that company bowed out when it was so close is beyond us since an investment of a couple of million could have likely paid off in the first year. Certainly, Nautilus has become a bit of a collector of brand names, amassing in recent years a group of names that have some recognition among consumers -- as much as any fitness name has. But to deplete its cash for the name when it can't seem to figure out how and where to market the ones it already has leaves us and others scratching our heads. Yes, the money is honestly a drop in the bucket and could make back its value easily -- if marketed and used correctly. We'll have to wait and see how this brand is used in the Nautilus stable. For True and Cybex, the name made less sense since both companies pride themselves on higher-end product. Why would they want a sporting goods name? It couldn't match up with their standards and image, which they have both worked so hard to maintain. Certainly, True has struggled to find a way to offer strength products and hasn't figured out that segment yet after a couple of attempts, but Universal would not have made much sense, we think. For Cybex, we think it came down to a gamble -- CEO John Aglialoro's poker hobby perhaps surfacing: If you could get it for cheap enough, why not? But the company knew the game was over and put down its cards pretty quickly and smartly. Above all, we do hope SOMETHING comes of the name and it isn't hung out to dry up and waft away.

Related