Twice-bankrupt Tower Records Inc. sang a final tune of sorts in October 2006, when a judge approved the company's sale to a liquidator. But after the winner of the rights of Tower's Web site, intellectual property and other assets backed out, the retailer is banking on a new auction set for March.
A final sell off will mark the end for the latest music store chain to wrestle with bankruptcy, a group of retailers rendered largely obsolete in today's digital music era where the 99-cent download plays a far sweeter tune than the $16 CD.
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SAME OLD STORY
Los Angeles-based liquidator Great American Group won the two-day auction for the company with a $134.3 million stalking-horse bid. The acquirer beat out rival Trans World Entertainment Corp. and 13 other qualified bidders that submitted offers in late September. Tower had sold its Web site to Norton LLC for $3.8 million during the auctions but after a messy dispute, the sale never closed.
The liquidation marked the end of Tower's second short stay in bankruptcy, having filed for Chapter 11 in August after a 35-day stint that began in February 2004.
- Tower's first filing was to implement a debt-for-equity swap, which gave 85% of the company to bondholders in exchange for $110 million in senior notes. When Tower came out, it was then carved up between Barclays Bank plc (20.6%), Highland Capital Management LP (15.5%), AIG Global Investment Group (14.5%), MW Post Advisory Group LLC (12.3%) and its founder, Russell Solomon (15%). Dealwatchers would later examine the merits of a too-quick exit from bankruptcy.
- Tower didn't amend its revolving credit facility with its debtor-in-possession lender CIT Group/Business Credit Inc. during its first bankruptcy, and at the time of its second filing risked defaulting on the loan. As The Deal's John Blakeley points out, Tower Record's own court papers, foreshadowed its end:
"Without a restructuring or the sale of substantial business assets, it is unlikely that the debtors will have sufficient liquidity to pay the portion of the CIT facility that becomes due on Dec. 15."
But, according to a source, it was a lack of industry support that sealed the company's fate. "The 'Big Four' [Universal Music Group, Sony BMG Music Entertainment, EMI Group plc, and Warner Music Group Corp.] account for 85% of music retail sales and they cut this company [Tower] off." For more on their twisted, intertwining tales, see another Dealwatch.
ALSO AT THE CHECKOUT
In the new era of digital music downloads and discount shopping, other traditional music retailers have struggled in bankruptcy, including National Record Mart Inc., Warehouse Music Inc. and Musicland Holding Corp. Luckily, Trans World Entertainment was there to save them, buying all three out of bankruptcy. The most recent was Musicland, which owns Sam Goody, and went to the tune of $122.3 million in cash and debt.
As for digital music, there too have been struggles, but even more, perseverance.
- Napster LLC, which pioneered digital music file-sharing, sparked tremendous controversy in doing so. A judge shut it down in 2001, having been persuaded by record labels the company was violating copyright laws. The company went belly up in 2002 and its assets were sold to multimedia software company Roxio, which took Napster's name and relaunched a legal file-sharing service in 2003. Now it's on the block and though not profitable, could go for $300 million, according to analysts.
- Meanwhile, its founder, Shawn Fanning is still making music and headlines in the file-sharing world. His company, Snocap Inc., recently announced a deal with MySpace.com to offer the social networking site's users the chance to sell their own music through their profile pages.
- At the time, MySpace boasted 3 million musicians and more than 100 million users. It's a opportunity for all of the artists that can't sell their music on Apple Computer Inc.'s iTunes or in Best Buy Co. Inc. stores, Snocap's vice president for business development, Alex Rofman, told me in September--the same people that wouldn't have been able to get into Tower Records or Sam Goody ten years ago.
| Dealwatch executive summary |
Date |
Action |
| 2.2007 |
Tower will head back to court to sell Web site, related biz. |
| 10.06.06 |
Tower sells at auction. |
| 9.2006 |
Fifteen bidders line up for Tower. |
| 9.29.06 |
Tower tumbles into Chapter 11, part 2. |
| 9.05.06 |
MySpace and Snocap team up to let everyone sell music. |
| 7.2006 |
The story of EMI-Warner Music-BMG's song and dance. |
| 6.04.06 |
Dealwatchers wonder whether some quick exits are too quick. |
| 5.16.06 |
Trans World grabs Musicland. |
| 3.15.04 |
Tower emerges from its first bankruptcy stay. |
| 2.09.04 |
Tower tumbles into Chapter 11, part 1. |
| 5.19.06 |
Columbia Sussex finally wins Aztar. |
Source: The Deal |
