By Peg Brickley
GT Advanced Technologies Inc. Monday won bankruptcy court
approval of a settlement with Apple Inc. that wards off the threat
of litigation over a failed effort to produce large quantities of
scratch- and shatter-resistant smartphone screen materials.
Approval from Judge Henry Boroff came after GT Advanced and
Apple came to terms with leading creditors who had threatened to
derail the pact and transform GT Advanced's bid for an operational
turnaround into a litigation-driven bankruptcy aimed at Apple.
The deal uncouples GT Advanced from Apple, and keeps a lid on
litigation that could erupt from the corporate breakup that shocked
investors unaware that the business relationship was on the
rocks.
GT Advanced filed for Chapter 11 bankruptcy protection in
October, its business in disarray after a year's foray into the
business of manufacturing smartphone screen material, a venture
financed by Apple with $439 million worth of loans. Apple's latest
generation of iPhones launched without GT Advanced sapphire
screens.
In court papers, GT Advanced accused Apple of keeping it a
"captive" supplier, subject to shifting specifications. GT Advanced
also said it was the victim of Apple's interference in the
manufacturing process and found itself in a one-sided deal with a
customer that allegedly refused to buy or to bargain.
Apple countered that it was the wronged party, left without
sapphire screen material, vilified as a corporate bully and owed
hundreds of millions of dollars. "Apple recognizes that the
ambitious venture to produce sapphire in meaningful quantities and
at a reasonable cost has failed," lawyers for Apple wrote in court
filings.
Creditors scrutinized the settlement to ensure they weren't
trading valuable damage claims against Apple for too little. As
lender, landlord and alleged demanding customer, Apple was
vulnerable to a number of different legal actions, such as a
challenge to the validity of its secured debt. James Carr, lawyer
for the official committee of unsecured creditors, said creditors
worried whether GT Advanced would be able to find financing and
keep its business alive while battling Apple in lawsuits that would
be "difficult to prove."
Apple said in court papers it is surrendering substantial claims
of its own that it has against GT Advanced in order to walk away.
There is no evidence to support the "numerous accusations against
Apple," the company's lawyers wrote.
The settlement approved Monday at a hearing in the U.S.
Bankruptcy Court for New Hampshire gives GT Advanced four years to
sell off the equipment from the abandoned sapphire manufacturing
venture to pay down the Apple debt.
Until hours before Monday's hearing, opposition from the
official committee of unsecured creditors and from a group of
bondholders posed a danger to the settlement. To win over balky
creditors, Apple agreed to give GT Advanced a larger share of the
sales, and more time, rent-free, in a giant Mesa, Ariz., facility,
to wrap up the operation.
GT Advanced says it needs the deal to go through so it can focus
on rehabilitating its business, which was left in bad shape by
efforts to become an Apple screen material supplier. Once a healthy
manufacturer of equipment, GT Advanced spent $900 million to pursue
the transformative supply connection to Apple, including money
raised from shareholders and bondholders.
With its revenue "almost non-existent" after Apple turned its
back on GT, the company is counting on selling the equipment to
keep going as it searches for bankruptcy financing and attempts to
get back to its roots as a manufacturer, financial adviser Neil
Augustine said at Monday's court hearing.
Write to Peg Brickley at peg.brickley@wsj.com
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