Trans World CEO Proposes to Buy Chain’s Outstanding Stock

Higgins founded the chain as Record Land in 1972 and opened the first store under the Record Town banner a year later. He’s proposing to buy for $5 a share the 60 percent of the stock that he and investors he’s allied with don’t own. The stock was trading at $4.92 Wednesday. Among Higgins’ allies is Riley Investment Management, which at midsummer increased its Trans World stake to 11.9 percent (3.42 million shares) this month from 9 percent (2.8 million). Higgins owns 16 million shares. Trans World has about 31 million shares outstanding.

Higgins’ bid caps a process that began in May when the chain hired Goldman Sachs to help a special committee of the board review options to increase shareholder value, the company said. The committee is considering an outright sale of the company in addition to Higgins’ plan, the company said. Chief Financial Officer John Sullivan declined to disclose when the special committee and the board are supposed to finish their reviews. The special committee is allowing Higgins to seek additional co-investors, the company said. Other major Trans World shareholders include Dimensional Fund Advisors (2.88 million shares, 9.3 percent) and Lloyd Miller (2.82 million shares, 9.1 percent), according to an SEC filing. Higgins disclosed his plans in an SEC filing on Nov. 9. Trans World has a market capitalization of $152.9 million.

Trans World, which operates 962 stores under the names f.y.e. (680 stores), Suncoast Motion Picture Co. (114), Saturday Matinee (15) and others, grew rapidly by buying up regional chains including Camelot, Spec’s Music, Strawberries, Camelot and The Wall and Wherehouse Music. The largest of the acquisitions was Trans World’s purchase of bankrupt Musicland in 2006 for $78.8 million and $16 million in debt. That purchase brought it Media Play, On Cue, Sam Goody, Suncoast Motion Picture Co. and other chains, most of which were closed or folded into f.y.e.

The news of the possible sale comes as Trans World’s third-quarter net loss widened to $14.3 million from $11.4 million. Revenue declined to $260.6 million from $297.7 million on a 4 percent drop in same-store sales. The nine months ended Nov. 3, Trans World closed 30 stores of 45 to 50 it expected to shut in the fiscal year ending in February. Same-store music sales declined 21 percent in the third quarter and accounted for 40 percent of total revenue, down from 48 percent a year ago, company officials said. Home video posted an 8 percent gain in same-store sales, representing 38 percent of total revenue vs. 35 percent a year earlier. CE, accessories and boutique logged a 22% rise and were 13 percent, company officials said. Video games, fueled by sales of Microsoft’s Halo 3 and Activision’s Guitar Hero III, posted a 29 percent increase in same-store sales, accounting for 10 percent of total revenue, up from 8 percent a year ago.

Trans World has expanded its test of its Mix & Burn music download service to 40 stores from 25 (CED Aug 24 p3) as it continues to gauge consumer demand and the return on investment. A test with Mix & Burn started with 10 f.y.e. stores in 2006, shortly after Trans World bought 80 percent of the company. Ten of stores involved in the test are in the Providence, R.I., market. Trans World originally planned to have the service available in 100 to 200 stores this year (CED Jan 4 pp3). “It’s a slow process and the amount of content that is available remains small,” Sullivan said. Trans World began DRM-free sales of Universal Music Group titles in August, but the uptake by consumers remains small, he said. Trans World has combined Mix & Burn with its listening and viewing stations in fewer than 10 locations, Sullivan said.

Trans World also is continuing to test an f.y.e. remodel at 26 locations and will review after the holiday selling season whether to expand the concept, Sullivan said. Trans World is spending about $30,000 a store on carpets, paint, signs and entertainment vignettes that replace a category- based format, Sullivan said. - Mark Seavy