WILMINGTON, Del. After a lengthy auction stretching over two days, a federal bankruptcy judge on Friday approved the sale of California-based Tower Records to Great American Group, which plans to liquidate the music retailer.
After almost 30 hours of what attorneys described as “robust” and “vigorous” bidding, Great American won with a bid of $134.3 million, beating Trans World Entertainment, which had hoped to continue operating at least some Tower stores, by a single bid increment of $500,000.
Peter Gurfein, an attorney representing Tower Records, said the company will be sold for an aggregate of $150 million, including the sale of various leases and properties.
Gurfein said Great American plans to begin the liquidation process and going out of business sales on Saturday, which eventually will result in the elimination of the jobs of some 3,000 Tower employees.
“This is not an easy decision,” said bankruptcy Judge Brendan Shannon, who nevertheless noted that the Tower debtors and other parties had agreed the bidding process was conducted fairly and in good faith, resulting in a substantial premium for the debtors over Great American’s stalking horse bid of about $90 million.
“It is not my job to substitute my judgment for that of the debtor,” Shannon said. “… It is unfortunate and it is painful, but the fact of the matter is that the process has played itself out.”
Tower Records, which has 89 stores in 20 states and owes creditors about $200 million, filed for Chapter 11 reorganization in August. In its filing, the company said it has been hurt by an industrywide decline in music sales, downloading of online music and competition from big-box stores such as Wal-Mart.
Tower’s Chapter 11 filing came two years after initial reorganization that resulted in bondholders forgiving millions of dollars in debt but taking an 85 percent stake in the company, leaving founder Russ Solomon and his family with 15 percent.
Solomon founded Tower in Sacramento, Calif., in 1960, starting by selling records out of his father’s drug store and eventually opening the company’s landmark store on Hollywood’s Sunset Boulevard in 1969. As part of the bankruptcy auction, the Sunset property will be sold for $12 million.
“It’s a sad ending to a well-known, highly respected name, but I think it just goes to show you the rapidly changing nature of the specialty entertainment business,” said Joe Gomes, an industry analyst with McGinn Smith.
“I think people will be disappointed that they won’t be able to make a go of it, but as long as two years ago, the writing was on the wall that business was tough,” Gomes added.
Michael Bloom, an attorney representing Tower’s secured trade creditors, urged Shannon to consider the closeness of the bids and the effect that liquidation would have before deciding whether to approve the sale.
“We can save this company or we can liquidate it,” Bloom argued. “… Sometimes, the highest bid is not the best bid. In this case, your honor, we believe the best bid is the Trans World bid.”
Trans World, which has about 1,100 mostly mall-based stores nationwide, has recently acquired other music retailers such as Sam Goody and Wherehouse Music, consolidating most of its acquisitions under the FYE name, which stands for For Your Entertainment.
Tim Pohl, an attorney representing Trans World, asked the judge whether $500,000 was “a material enough difference” to liquidate a company, as opposed to keeping thousands of people employed.
But Jay Indyke, an attorney for Great American, said Trans World and its bidding partners had discussed liquidating inventory and closing about two dozen Tower stores, and that they would not say how many stores they would continue to operate.
“This supposed going concern deal could just be a liquidation deal,” Indyke said.
– Associated Press –