Don't fall for the hype. Crumbs Bake Shop (NASDAQ:CRMB) has filed for bankruptcy and shareholders will be wiped out. Some investors are mistakenly excited because a company called Lemonis Fischer Acquisition Company is providing DIP financing and seeking to acquire the assets.
The key phrase here is "seeking to acquire the assets." Think of it like a foreclosed home that is auctioning off what is left. The previous owner, which is the shareholders in this metaphor, doesn't see a dime. Any proceeds go to the creditors. And the senior most creditor is now Lemonis. As the provider of the DIP financing, Lemonis is entitled to get paid ahead of all other creditors as it funds Crumbs' ongoing losses.
In a release after hours on Friday, Edward M. Slezak, Crumbs Chief Executive Officer and General Counsel, stated,
"The steps we are taking today will allow us to continue to execute our business strategy, expand our licensing business and position ourselves to move toward a franchise store model. We remain saddened that we were forced to cease operations before this agreement was reached, but we strongly believe that pursuing this sale through the chapter 11 process is ultimately in the best interest of the Company and its stakeholders."
By "stakeholders" he's not talking shareholders. He's talking creditors. In another release, it was stated Lemonis "intends to acquire Crumbs' assets, form a new privately held company and re-open its locations." A new "private company" means a new company that excludes existing shareholders. There is no plan for salvation for them. The plan is to get rid of them.
That means getting rid of you if you buy CRMB stock. It's theoretically possible that CRMB shareholders could form a shareholders' committee and fight for its rights and get some sort of annoyance type of settlement that gives shareholders a tiny crumb of the new company, but don't count on it. Especially don't count on it having enough value to justify the market cap you'd be paying now.
In short, if you're out of CRMB - stay out. If you're in CRMB, look for an exit like yesterday. There is little to no hope of anything for CRMB shareholders. Not even a crumb of a cupcake.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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