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Trans World Investor Ups CEO's Bid, Analyst Not Impressed

10 Dec, 2007 By: Erik Gruenwedel

A potential bidding war is emerging for control of Trans World Entertainment Corp., which operates 963 stores primarily in the United States under the F.Y.E., Suncoast and Second Spin brands.

Sherwood Investments Overseas LTD, which owns more than 1.7 million shares, or 5.48% of Trans World's common stock, last month sent a letter to founder/CEO Robert Higgins and a special committee of the board with a $7 per share cash offer for all outstanding stock.

The Nov. 29 letter, which was disclosed in a regulatory filing Dec. 10, did not outline how Sherwood would finance the acquisition.

Analysts say challenges in entertainment retail, specifically music sales, necessitate a return by Trans World to privately held status, thereby eliminating accounting, administrative and legal costs associated with being public.

The LTD's bid is in response to a current $5 per share cash offer from Higgins and investor Bryant Riley to take Trans World private. Higgins and Riley together control about 55% of Trans World's stock.

In a Nov. 16 letter, Sherwood called the $5 bid “grossly inadequate” and cited Trans World's 2006 $78.8 million acquisition of 335 bankrupt Musicland stores as proof it valued its own stores at substantially more than Higgins was willing to pay.

“We are highly confident than an auction of the company would result in a sale in excess of $8 per share, a considerable premium to your current proposal,” said Sherwood.

Trans World's board established a special committee to review the CEO's Nov. 7 non-binding offer and on Nov. 20 agreed to allow Higgins to seek third-party co-investors.

Sherwood said it would consider increasing the offer after obtaining additional information in the due diligence process.

Analyst Edward Woo, with Wedbush Morgan Securities in Los Angeles, said Wall Street remains skeptical of Sherwood's offer due to the relative anonymity of the investment group and it means of funding an acquisition.

“We don't know if they have hard financing or are just positioning for a better [acquisition] offer,” Woo said. “They only own 5% of [Trans World], how are they going to overcome the majority of Higgins and Riley?”

Woo said based on current information, including Higgins' track record with Trans World, the CEO and Riley remain in the driver's seat regarding changing the company's market status.

A representative from Sherwood was not immediately available for comment.

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