Callers to the Simi Valley headquarters of Ronco Corp., the gadget-hawking company that dominated late night TV with hokey but irresistible infomercials for years, still hear a familiar voice saying, “Hi, this is Ron Popeil ”
Popeil, the nearly legendary pitchman of Veg-O-Matics and the Pocket Fisherman, hasn’t been with the company since he sold it in 2005, and his smooth tones are among the only traces of him left behind with the company he founded.
What does remain is a raft of bitter battles, a bankruptcy and shattered stock. There are dueling lawsuits between former executives and whistleblowers’ allegations of credit card fraud.
The company is to be sold in a bankruptcy auction soon. Popeil could bid to reclaim his old company, but is leaning against doing so.
In Chapter 11 filings, Ronco claims $13.9 million in assets, most of it in Ginzu knives and other trademark gadgetry that is being held hostage in warehouses by creditors who claim they haven’t been paid. The company has run up a debt of $32.4 million including nearly $12 million that Popeil said he’s still owed. About 30 former employees lost their jobs over the past year, although the company still employs about 90.
The company’s stock has tanked. Ronco shares were trading at 2 cents last week, plummeting from the more than $2 per share price late last summer and $6 a share in January 2006.
According to various court documents and interviews, the new company was constrained at the outset because it barely had enough working cash to get by for a few weeks while it needed plenty of cash to buy infomercial time and goods for the upcoming holiday season. It had a corporate structure that suited a privately held company (which Ronco was for years) but lacked the systems and resources for a newly public company. It was unable to buy new products including Popeil’s latest invention, a flash fryer or put money into marketing.
According to bankruptcy filings, Ronco generated approximately $45 million in revenue and $29 million in gross profit during the calendar year 2006. But that gross profit wasn’t enough to pay all the employee and executive payroll, benefits, warehousing and shipping costs, infomercial airtime and vendor bills over the months. The company began consulting with L.A. bankruptcy law firm Klee, Tuchin, Bogdanoff & Stern LLP last October.
“There was no money for marketing, advertising or anything Ronco needed to do,” said Jefferson Nunn, who was head of the technology department until earlier this year. “They could barely make payroll.”
Dueling CEOs
To compound the problems, there was a change at the top followed by lawsuits.
Former Chief Executive Richard F. Allen, a holdover from the Popeil days, was fired in January by Houston investment bank Sanders Morris Harris Inc. That firm had helped arrange Ronco’s $55 million sale to a group of investors led by Allen, who is Ronco’s largest private shareholder in 2005 and subsequently guided the buyers as they took the company public through a reverse merger with Fi-Tek Inc.
Sanders Morris Harris, which took a $3.5 million commission on the sale, had insisted that John Reiland, a former senior financial analyst for the firm, be hired as a replacement for Allen as chief executive as a condition for a $3 million loan.
“They were trying to grow to become this mega-company and had no money to maintain that growth,” said Allen. “But there was an expensive personnel infrastructure already hired to handle it.”
Ronco sued Allen in February for allegedly submitting $240,000 in false business expenses and $150,000 for “finder’s fees” between July 2005 and August 2006.
Among the charges: that many expenses submitted by Allen had no clear explanation; that business meals charged to the company often included alcohol, an alleged violation of the company’s policy on substance abuse; that Allen sought reimbursement for personal charitable contributions and that he spent more than $8,000 on “entertainment expenses” including golf fees and theater tickets.
Allen filed a countersuit for $1.5 million for wrongful termination and breach of contract along with punitive and other damages, alleging that Ronco withheld a $1 million severance payment. Allen also claimed that Reiland and Sanders Morris had failed to properly investigate Ronco’s grim financial condition before arranging the 2005 sale.
Ronco’s current leadership isn’t talking. CEO Reiland would not comment on the record and Ronco’s bankruptcy attorney, Stacia Neeley, did not return phone calls last week.
Popeil, semi-retired and living in Beverly Hills, talked little.
Auction ordered
A court-ordered auction of Ronco’s assets has been set for Aug. 1 at U.S. Bankruptcy Court in Woodland Hills. But even that’s generated lawsuits.
The company has sued its warehouses in Illinois and California for withholding more than $1 million in merchandise including food dehydrators, rotisserie ovens and knife sets that the company wants to unload at the auction. According to the July 5 suits, Ronco acknowledges owing the warehouses $250,000, but maintains that bankruptcy law shields companies operating under Chapter 11 protection from seizures by creditors.
El Segundo firm Marlin Equity Partners LLC is the stalking-horse in the auction, or the bidder that makes the first offer that sets the floor. Marlin tentatively agreed to acquire the company for $10 million in cash plus the assumption of certain liabilities well below the $55 million sale price of a couple years ago. Should no other qualified bidders emerge by July 30, the auction will be canceled and the assets sold to Marlin.
Marlin has acquired seven companies in the technology, consumer goods and healthcare sectors since it was founded in 2005. The firm invests in companies with $10 million to $500 million in revenue, including companies in distress and turnaround situations.
As if Ronco needed more problems, there have been allegations from employees that the company charged customers’ credit cards to fund operations as Ronco descended into bankruptcy.
Nunn said, “People would call and place their orders and Ronco would charge their credit cards, then they would call six weeks later to ask where their merchandise was and it was, ‘you’ll have to wait.’ ”
In the company’s bankruptcy filing, Reiland estimated that “there is approximately $200,000 of pre-petition customer orders waiting to be fulfilled.”
And there are disputes over compensation.
Early this month, Allen filed an objection to increases to Reiland’s and two other executives’ salaries. The court filing states “the compensation being paid to debtor’s three insider executives is excessive, especially in light of the fact that monies being paid to them will increase dollar-for-dollar the amount of post-petition borrowing necessary by the debtors.”
The next Veg-o-Matic?
Former company insiders blamed the company’s woes on a dearth of product development and marketing.
“If you keep spending money and have no new products in the pipeline or in development eventually you will go down,” said Ted Roderick, who was vice president of international sales and marketing and who left shortly after Allen was fired. “If you are a product-driven company, then no product means no there is no company.”
According to Allen, Ronco had just $250,000 in the bank after the sale, money that could barely cover the monthly payroll, much less the fees incurred in the company’s bid to go public. Allen estimated that cost between $3 million and $4 million, including hefty fines for registering late with the Securities Exchange Commission.
“The company had been engineered around Ron and what he wanted to do, the way a private company is. And it worked,” said Nunn, Ronco’s former technology chief. “But that’s not the same as what a public company needs to do.”
At the time of the 2005 sale, Ronco had the rights to use Popeil’s likeness and a first-look deal to buy his future inventions. But the company gave the rights back to Popeil when it secured an $11 million debtor-in-possession loan from Laurus Master Fund Ltd.
Popeil said that Ronco had earlier this year turned down his latest invention, a flash deep-fryer for turkey, vegetables and other food items. The inventor and spokesman said that he had not totally ruled out buying back the company he founded, though he was leaning against it.
Allen said that he and a group of investors expect to cut their losses after the sale and auction.
“I don’t think anybody will see any money out of this,” Allen said. “In my opinion, this was a totally packaged bankruptcy to go in and out within 30 days to wipe out all debts.”
