2 Bidders Emerge as Tower Records Seeks Bankruptcy Protection
At least 2 potential buyers for Tower Records have emerged as the chain sought bankruptcy protection, blaming a sharp drop in prerecorded music sales.
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The potential buyers’ identities weren’t revealed in documents filed with the U.S. Bankruptcy Court, Wilmington, Del., but analysts have cited Trans World Entertainment as a possible candidate. Two bidders submitted letters of intent to buy Tower and a potential agreement is being “actively negotiated” with one, Lindsey Allen, managing dir. of Tower’s investment bank, Houlihan Lokey, Howard & Zukin, said in court papers.
Trans World officials declined comment last week, but the retailer recently finished acquiring 400 Musicland stores (Sam Goody’s, Sun Coast Motion Picture Co.). Musicland filed for bankruptcy in Jan. Bids for Tower are due Sept. 22, with an open auction Oct. 5 at a Del. law office, according to court papers. Bondholders put Tower up for sale in Feb.; 2 companies made “unacceptable” bids, Allen said.
Tower filed its petition under section 363 of federal bankruptcy law, designed to speed a sale by giving creditors less control than in a typical bankruptcy proceeding. The clause gives potential buyers more freedom to cancel debt remaining after the sale and the bankruptcy case ends. To fund operations, Tower secured $85 million in debtor-in- possession financing from its lender, CIT Group/Business Credit Inc. CIT, owed tens of millions by Tower, believes the chain’s survival is the only way “to attract the highest and best offer for the company,” CIT Vp Gary Prager told the Sacramento Bee. Tower said in court papers that 76 of its 89 stores are profitable. It didn’t disclose the fate of its 380 corporate jobs, should a sale occur.
Tower’s fate seemed sealed earlier this month after major labels stopped shipping CDs and DVDs amid credit concerns. The bankruptcy filing was MTS’ 2nd in 2 years. MTS also sought a buyer for Tower in 2004, later emerging from bankruptcy protection without a sale. Trade creditors were owed $74 million, while record labels, in a separate filing, estimated the debt at $82.8 million. The largest unsecured creditors included: Ingram Entertainment, $760,084; Image Entertainment, $750,592; Ventura Home Entertainment, $427,711; Music Video Distributors, $333,830; and BCI-Eclipse, $287,104.
“Tower Records has conducted an extensive sale process, and this step will allow buyers to complete a sale in time for the holiday season, while maximizing the value for stakeholders,” a statement by Joseph D'Amico, Tower’s new CEO charged with completing a sale, said: “Potential parties seeking to acquire Tower Records recognize the strength of the brand and its unique position within the marketplace, making it a very attractive opportunity.”
Tower emerged from the first bankruptcy case with $80 million in debt eliminated. But sales fell nearly 10% to $430 million in the fiscal year ended July 31, Tower said in court papers. Cash flow dropped by half to $10.2 million, it said.