Sunday, April 7, 2013

Weekend Update: Perfumania/Parlux Hires Legit Exec, Jay-Z Gets Richer

Donald J. Loftus

According to a press release on Friday, Donald J. Loftus has been hired as president of Parlux Ltd. and executive vice president of Perfumania Inc. Parlux, of course, produces high-profile celebrity scents by Paris Hilton, Jessica Simpson, Rihanna and a slew of others.
Loftus brings a wealth of experience to the company and is one of the most respected executives in the beauty industry. Most recently, Loftus was the North American President and CEO of P&G Prestige, a position he held for over ten years. Prior to P&G Prestige, he held positions at Cosmopolitan Cosmetics, Escada Beaute, YSL Beauté and also served as Divisional VP at May Department stores. Loftus is a former Chairman of the Board for The Fragrance Foundation and the current Chairman of Fashion Group International.
Let’s hope the hiring of a credible outsider like Loftus will put an end to such embarrassments as last November’s imbecilic Parlux press release for the new Rihanna fragrance.

Speaking of outsiders and insiders, this is a great time to revisit that tangled knot of cross-holdings, family trusts, and related-party sales that constitute the saga of Perfumania and Parlux Fragrances. The last time we checked in, the former was looking to acquire the latter. That deal closed on April 18, 2012, and Parlux (the perfume manufacturer) is now part of Perfumania Inc. (the perfume retailer).

The upshot, as disclosed in a proxy statement for its January 10, 2013 annual shareholders meeting, is that Glenn Nussdorf, Stephen Nussdorf and their sister, Arlene Nussdorf collectively are the beneficial owners of approximately 55% of Perfumania Holdings Inc. The astonishingly unGoogle-able Rene Garcia and certain family trusts and affiliated companies of Rene Garcia own another 24%. In addition, rap mogul Jay-Z, a.k.a. Shawn C. Carter and S. Carter Enterprises, LLC, (a company he controls), own another 11%.

In other words, 90% of the company’s shares are controlled by five people. [Still feel like buying in?—Ed.] [No thanks.]

Perfumania’s various SEC disclosures are a wonder to behold. Here’s one gem:
Glenn, Stephen and Arlene Nussdorf own GSN Trucking, Inc. which provides general transportation and freight services. The Company periodically utilizes GSN to transport both inbound purchases of merchandise and outbound shipments to wholesale customers.
Here’s another: six estate trusts established by the three Nussdorf siblings hold promissory notes from the company worth $85.4 million, while brothers Glenn and Stephen hold another note worth $5 million (it is currently in default, which triggers a higher interest rate). These loans can only be repayed after the company pays off a $225 million line of revolving credit. [Sure you don’t want to invest?—Ed.] [Yes, really sure.]

Capitalist Jay-Z Visiting Communist Hell-hole

Finally, let’s review how Jay-Z got his 11% stake in Perfumania. Two years ago he, along with the cryptic Rene Garcia, created Artistic Brands Development LLC. ABD obtained rights to license fragrances from Rihanna, Kanye West, and Shawn “Jay-Z” Carter himself. ABD then sublicensed the rights to Parlux, in return for warrants to 8 million shares of Parlux. Easy peasy.

A year later, with its acquisition of Parlux on the horizon, Perfumania agreed to give ABD 300,000 Perfumania shares “as consideration for certain licensing transactions contemplated” as part of the merger. Those shares went to ABD’s designee Shawn Cater when the deal closed on April 18, 2012. Easier peasy.

On that same day another deal kicked in: Perfumania issued warrants for 1,599,999 shares to ABD at an $8 strike price. It turns out that ABD owed unpaid guaranteed minimum royalties to its licensees (among them presumably Shawn Carter). As part of this new deal, Perfumania obtained the sublicense rights (that used to belong to Parlux), in return for assuming ABD’s outstanding royalty obligations. (Cash for Jay-Z. Sweet!) Plus ABD and the opaque Garcia Group received warrants for 3,199,972 shares of Perfumania. (More shares for Jay-Z. Sweeter!)

At Friday’s closing price of $5.35 a share, Jay-Z’s 1,919,784 shares of Perfumania are worth $10,270,844.

I couldn’t name a single tune of his, but I admire his talent.

No comments: