Trans World to Acquire Wherehouse, CD World18 Sep, 2003 By: Holly J. Wagner
Trans World Entertainment Corp. has agreed to acquire bankrupt music retailers Wherehouse Entertainment and CD World in two transactions with a combined value of nearly $43 million.
Wherehouse will sell its assets to Trans World Entertainment Corp. in a $41 million transaction, with $36 million of the sale in cash and the rest in assumed debt.
Wherehouse, which is operating in Chapter 11 bankruptcy, owns and operates 148 stores primarily in the western United States. Upon completion of the sale, Trans World expects to shutter 35 of Wherehouse's lowest-performing stores and operate the remaining 113.
Trans World has also agreed in principal to acquire substantially all the assets of New Jersey-based CD World Inc., a music retailer now operating under Chapter 11 bankruptcy that owns 13 stores in its home state and Missouri.
Trans World values the deal at $1.8 million. The transaction, which like the Wherehouse purchase is expected to close in early October, is subject to approval from U.S. Bankruptcy Court for the District of New Jersey.
In a statement, Trans World chairman and CEO Robert J. Higgins said, “[The Wherehouse] stores represent an excellent fit both strategically and operationally with our freestanding format, and provide us with a unique opportunity to expand our presence on the West Coast and gain significant market share in Los Angeles.”
The transaction is subject to the approval of the U.S. Bankruptcy Court for the District of Delaware. The deal is expected to close early next month.
Trans World Entertainment operates 831 stores in 46 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico, and an e-commerce site, www.fye.com.
In a move that could throw a monkey wrench in the deal, investment firm Sun Capital Partners — which had earlier acquired the struggling Musicland chain from Best Buy — plans to contest the Wherehouse sale to Trans World by appearing at the Sept. 29 Delaware bankruptcy court's final approval hearing, according to a published report.The appearance at the hearing is contingent on the firm's getting the major music labels to agree to normalized credit terms for Wherehouse, the report said.
A Sun Capital executive did not return a call for comment.
The Wherehouse agreement makes sense to Bob Alexander, president of New York-based research firm Alexander & Associates.
By his calculation, Trans World is paying somewhere in the neighborhood of $240,000 cash per Wherehouse outlet — a bargain considering the substantially higher cost of opening a new store, he said. Given the sorry state of the music industry, Alexander suggested Trans World turn the Wherehouse outlets into video-only stores and nix the record side, he said. “Video is a great business right now, and records aren't. I'd say the hell with it,” Alexander said.