The National Association of Attorneys General wants to stop the sale of all the assets of three bankrupt Mocksville tobacco companies to a Raleigh firm.
The group filed an objection Wednesday with U.S. Bankruptcy Court on CB Holdings LLC’s $15.6 million deal for Renegade Holdings Inc., Renegade Tobacco Co. and Alternative Brands Inc.
The deal, announced July 11, was projected to close Oct. 30. The Davie manufacturers have a combined 100 employees.
The association is involved because the 16 state attorneys general represent the largest unsecured creditor group.
It also has opposed a reorganization plan for the companies, citing a criminal investigation in Mississippi — at least 3 years old — involving Calvin Phelps, the owner of the companies, and accusations of “unlawful trafficking in cigarettes and other related crimes.”
It said the proceeds from selling the companies could be higher if the bankruptcy trustee, Peter Tourtellot, allowed for the escrow rights of Alternative to be sold separately.
After the landmark 1998 Master Settlement Agreement between 46 attorneys general and major U.S. manufacturers, smaller cigarette makers emerged, grabbing significant market share because they could sell cigarettes for less.
The states have passed laws aimed at reducing the smaller manufacturers’ competitive advantage by forcing them to put money into escrow in case they are sued by the states.
“The settling states’ knowledge of sales of nonparticipating manufacturers’ escrow rights owned (by others) indicated there is a market for such assets,” the association said.
It said the sale price for other escrow rights “has greatly exceeded the 23 cents on a dollar” that the CB Holdings offer represents. Prospective buyers for the escrow rights “are unlikely to have an interest in buying the other sale assets,” it said.
The association said the sale should be “direct to entities the states reasonably believe may be interested in buying the escrow rights and/or tobacco-manufacturing operations.”
Charles Fuller, president and chief executive of CB Holdings, has said the operations would remain in Davie with no changes except for the Renegade and Alternative Brands names. He could not be reached for comment Thursday.
CB Holdings owns Firebird Manufacturing LLC, a manufacturing company in South Boston, Va., and Cherokee Brands LLC, a sales and distribution company recently renamed from Cherokee Tobacco Co.
Tourtellot said when the deal was announced that combining the companies is the best solution.
“It protects the jobs of our employees in Davie County and puts two companies together that will be a much stronger player in the tobacco industry as opposed to individually,” Tourtellot said.
The manufacturers filed for Chapter 11 bankruptcy protection Jan. 29, 2009, and exited bankruptcy June 1, 2010.
They were put back into bankruptcy July 19, 2010, when the reorganization plan was vacated, in large part because of the criminal investigation.
Phelps also is facing a lawsuit alleging he made a fraudulent transfer of $8.1 million in assets from the three companies and used it to help buy six parcels of land, as well as Chinqua-Penn Plantation, two corporate jets, cigar-manufacturing equipment and a 2008 Maserati Quattroporte.
By Richard Craver