10/08/2001 @ 12:00AM

Riklis Driving

A corporate raider of yore is up to his old tricks.

Meshulam Riklis’ exploits are the stuff of legend. The Beverly Hills financier made and lost fortunes using leveraged buyouts that often left bondholders with little. His game has long been to trade assets that stand behind liabilities for paper in other companies he controls. There’s frequently a bankruptcy along the way.

He’s remembered as well for starting Carnival Cruise Lines with schoolmate Ted Arison, being once married to performer Pia Zadora and not paying rent bills from Donald Trump. But the crafty 77-year-old, last seen on The Forbes 400 in 1990 and apparently recovered from prostate cancer, is adding to his legacy.

Even as he fights with Burger King over his franchise in an Israeli-controlled area of the West Bank, Riklis is evidently behind a group that bought embattled Canadian clothier Dylex (BiWay and Fairweather chains), and, according to creditors in its pending bankruptcy case, sucked it dry and left them whistling for their money. Vintage Riklis–or as Bert C. Lafford of Canada’s National Apparel Bureau, trying to recover some $13 million for creditors, says: “It was a deal made in hell from the very beginning.”

Circumstantial evidence suggests that Riklis backed a May 2001 leveraged buyout of Toronto-based Dylex by Hardof Wolf Group, a holding company set up in Nova Scotia last December with Ted Watkins as president and Hardof Wolf as chairman. Both men are executives at York, Pa.-based McCrory Corp., an old five-and-dime chain Riklis has controlled since the 1960s. He brought McCrory out of five years of bankruptcy protection in 1997 only to file for Chapter 11 again in September. Another McCrory man was made Dylex president.

Dylex was in terrible shape at the time and therefore vulnerable. The company lost $19 million on sales of $422 million in its fiscal year ended in February, and its stock was trading in Toronto at the equivalent of 83 cents U.S. The Wolf pack paid $45 million for all the outstanding shares, with $40 million coming from Dylex’s own till and inventory, which was sold through a Chicago liquidator. The departing managers, who consented to the takeover, walked away with $3 million in golden parachutes.

Dylex got slower paying its bills and filed for bankruptcy in August, claiming it could not pay $50 million owed to its suppliers and other creditors. But Ontario Superior Justice James Spence instead wrested the company away and named a receiver to sell off what was left. The judge also called for an investigation.

Between February and July, Dylex’s working capital shrank by $58 million, some $15 million more than accounted for in the LBO transaction and the parachute payments. Where did the money go? Supposedly $4 million was used to convert most of BiWay’s 259 outlets into knickknack stores. Managers got $480 checks to spruce up, but they didn’t clear.

Dylex informed the receiver that it had placed orders through a U.S. outfit known as WWR, which shares McCrory’s Manhattan office space, for $26 million of Asian goods for BiWay’s outlets. Forensic accountants have found that $7.5 million was wired to WWR, but that Dylex received nothing in return. Dylex says in court papers that WWR sent the cash to Asian manufacturers who simply failed to deliver the orders.