Trans World to Rescue Tower?11 Aug, 2006 By: Erik Gruenwedel
Entertainment retail conglomerate Trans World Entertainment, which earlier this year acquired bankrupt Musicland Holding Corp., is reportedly eying financially troubled music chain Tower Records & Video, which is for sale.
The Sacramento Bee, citing a record company source, said Trans World would be a logical buyer considering its bargaining clout of more than 800 retail stores, including f.y.e., Sam Goody, Suncoast, Spec's and Second Spin.
West Sacramento, Calif.-based Tower — a preeminent national music chain for more than 40 years — has apparently been cut off from product shipments by the major record labels and movie studios for non-payment of bills.
Image Entertainment said it would ship product to Tower on a COD basis, which the music chain is apparently considering, according to Image COO David Borshell.
Tower was thought to have rebounded from bankruptcy two years ago and was lauded last weekend by the music industry for its retail prowess.
But the recent departure of CEO Allen Rodriguez and arrival of investment consultant Joseph D'Amico with a mandate to sell Tower ASAP would suggest the music chain's back is against the wall, making it potentially easy fodder for Trans World, according to analyst Edward Yruma with J.P. Morgan in New York.
“You are looking at the lowest of lowball offers,” said Yruma. “They are in the best position to acquire anything. They have the capital to do it. They would be looking to keep the best of the best stores and get rid of everything else.”
Yruma said that when Trans World bought Musicland they paid 62 cents on the inventory dollar, which meant that excluding packaged media all physical fixtures and trademarks were essentially free. He said the Tower brand is as strong as any Trans World retail brand.
“Who would be a potential acquirer of Tower? There's nobody,” Yruma said. “Trans World is really the only viable specialty entertainment retailer of any size left. There is always going to be a demand for [packaged media] on the music side.”