MONTREAL — Bermex has offered to purchase insolvent furniture manufacturer Shermag (TSX:SMG) with a plan to reopen its operations in Quebec and New Brunswick.
Shermag's board of directors has accepted Bermex's bid over another presented in an auction of its two core businesses and non-core assets in a public auction. The move is a first step in a process that requires approval from the Quebec Superior Court.
Financial terms of the proposed transaction were not immediately disclosed, said Yves Vincent, a monitor for RSM Richter in Sherbrooke, Que.
Bermex of Maskinonge, Que., near Trois-Rivieres would purchase all of Shermag's outstanding shares and assume part of its debt, which totals tens of millions of dollars.
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"Our goal is to reopen Shermag's plants," Bermex president Richard Darveau said in an interview.
"We are certain that it has potential. There is a market and the more the economy recovers, the greater the potential will be. Obviously, however, we won't reopen all the facilities at the same time, it will have to be done gradually."
Sherbrooke-based Shermag has 13 plants in Quebec and one in New Brunswick. The only one still open belongs to subsidiary Jaymar, north of Montreal, employing about 250 people.
The company has been hit hard by the recession and slumping sales in the United States and has been under the protection of the Companies' Creditors Arrangement Act for about a year.
Bermex's plan of arrangement will detail how much creditors would recover.
On Friday, the court granted Bermex five days to pursue its plans and for Shermag to obtain interim funding until the deal closes, slated for Oct. 16.
Founded in 1983, Bermex specializes in kitchen and dining room furniture. It has 13 factories in Quebec, employing 580 people. The company reportedly had $48.5 million of sales last year, making it one of the five largest players in the sector in Quebec.
Darveau wouldn't say what he planned to do about furniture imported by Shermag from China, which accounted for the bulk of its sales.
He said the bedroom furniture specialist's plants are in perfect condition for production.
"We have sufficient funds to keep these plants intact for at least two years" whether they are used for production or not," Darveau added, noting that the sites could be sold if the economic recovery takes longer than anticipated."
Bermex's two-year plan hasn't determined how many of Shermag's employees can be recalled.
"I hope one day to have 3,000 employees, because that's what they used to have," Darveau said. "But at what speed can they be created, only God and the devil know for sure. It will depend on the economy."
Shermag has been kept afloat by funding from Geosam Investments Ltd., a private company headed by activist investor George Armoyan.
Armoyan, who resigned from the Shermag board earlier this spring, is also the chief executive of Clarke Inc. (TSX:CKI), the Halifax-based activist investment firm which owns about 20 per cent of the Sherbrooke furniture maker.
Geosam has been funding Shermag's operations and restructuring process since taking over the furniture company's credit facilities last August from Wachovia Finance Corp.