Trade Secret bankrupt, salon chain to be sold

NEW YORK Tue Jul 6, 2010 1:31pm EDT

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NEW YORK (Reuters) - The operator of the Trade Secret beauty salon chain has filed for bankruptcy protection and plans to transfer its 612 salons to a new entity with the backing of Regis Corp (RGS.N), a creditor and former owner.

Trade Secret Inc blamed lower spending by consumers, an "unhealthy balance sheet," an inability to renegotiate enough burdensome store leases and inventory and purchasing disruptions for its decision to seek Chapter 11 protection with the U.S. bankruptcy court in Wilmington, Delaware.

Based in Markham, Ontario, Trade Secret operates salons under the Trade Secret, Beauty Express, BeautyFirst and PureBeauty brands.

According to court records, the sale transaction calls for Regis to enter a venture that will pay $45 million for Trade Secret, including $13 million of assumed liabilities.

Regis said it would then transfer its interest to a new entity affiliated with Trade Secret Chief Executive Brian Luborsky, which would then operate a scaled-down Trade Secret.

A sale is subject to higher bids through a court-supervised auction. Luborsky said Trade Secret will also seek court approval to exit leases for nearly 80 stores that are losing money at an "unsalvageable" rate.

Regis sold the money-losing Trade Secret to Luborsky's Premier Salons Beauty Inc in February 2009, receiving no proceeds.

Luborsky also controls Premier Salons Inc, which with various U.S. and Canadian affiliates operates 340 salons in department stores such as Macy's (M.N), Saks SKS.N and Sears (SHLD.O). That entity is not part of the Chapter 11 case.

"The Chapter 11 reorganization of Trade Secret results in a leaner, more profitable company, and helps protect Regis' secured interest," said Mark Fosland, a Regis vice president of finance."

Minneapolis-based Regis operates salons and hair restoration centers under such brands as Supercuts, Cool Cuts 4 Kids and Hair Club for Men and Women. Its shares were down 20 cents at $15.16 in afternoon trading.

The case is In re: Trade Secret Inc, U.S. Bankruptcy Court, District of Delaware, No. 10-12153.

(Reporting by Jonathan Stempel; editing by Dave Zimmerman, John Wallace and Andre Grenon)

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