With Beate Uhse Deal Killed, Penthouse Faces Emergency Asset Sale

Rhett Pardon
NEW YORK — In a stunning blow to the Penthouse empire, company executives Friday told a U.S. bankruptcy court judge that they may have to conduct an emergency asset sale next month.

The Friday announcement was linked to a revelation in a status hearing that Flensburg, Germany-based Beate Uhse AG has bailed out of a deal to invest $42.5 million into General Media Inc., the parent of Penthouse, which filed for bankruptcy protection last year.

Beate Uhse’s backing was an essential part of New York-based General Media's proposal to repay more than $40 million in bond debt and about $10 million in unsecured debt.

As a result of the failed deal, General Media executives told the court that the company might have to explore an emergency sale of assets if another arrangement could not be reached.

Calls to General Media officials late Friday were not returned to XBiz.

It is the second time the operator of Europe’s largest chain of sex shops has aborted a deal with General Media. Beate Uhse made a $62 million bid in March for Penthouse and its websites and trademark, but pulled out of the bidding a month later.

Beate Uhse sells erotic lingerie sex toys and videos through its two mail-order catalogs, Beate Uhse and Pabo, and its chain of more than 200 sex shops in nine countries. It also offers adult content through its website operations and a telephone sex network in Europe. It owns 49 percent of Beate-Uhse TV.

General Media’s announcement on Friday also may hinder Penthouse’s planned sale of Deerfield Beach, Fla.-based iBill to Care Concepts I Inc., which agreed to acquire it from Penthouse for $55 million in an all-stock deal that took place last Friday.

IBill, one of the adult industry’s largest third-party processors, averaged 1.2 million transactions per month and completed approximately $330 million in gross transactions in 2003.

With the iBill deal, Penthouse would own nearly 20 percent of New York-based Care Concepts, which owns online auction site iBidUSA.com, as well as Foster Sports Inc., a sports-oriented multimedia company.

The iBill transaction is subject to standard closing conditions as well as the approval of the American Stock Exchange, which preliminarily advised Care Concepts that to maintain its listing on the exchange, it would be required to satisfy criteria for an initial listing giving effect to the acquisition.

IBill was acquired by Penthouse in March from Norcross, Ga.-based InterCept Inc. through its Media Billing LLC division, which purchased the company with $700,000 in cash, $800,000 in a short-term loan and the assumption of $22 million in debt.

Two months ago, iBill said the Justice Department was investigating the company in an antitrust probe along with two other large adult processors.

The investigation is seeking to determine whether the two competing online adult payment providers, as well as iBill, collaborated to set fees and if so, whether practices are anti-competitive.

IBill told XBiz in May that it believes potential legal claims relating to iBill are in the tens of millions of dollars. It learned of the federal probe after closing the deal.

The year continues to be stormy for Penthouse International, the parent company of General Media.

In May, Penthouse International said its public shares would no longer be traded on the Over-the-Counter Bulletin Board and that its stock had been relegated to the Pink Sheets, a stock quotation service that handles high-risk ventures and isn't regulated by the Securities and Exchange Commission.

Penthouse International, which had $53 million in revenue in 2002, said the move to the Pink Sheets was due to a late filing with the SEC and the company's acquisition of iBill.

Penthouse International shares rose 3 percent Friday in trading to 15 cents.