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Bidding for Tower records starts around $90 million-plus
[September 18, 2006]

Bidding for Tower records starts around $90 million-plus


(Sacramento Bee, The (CA) (KRT) Via Thomson Dialog NewsEdge) Sep. 15--The bidding for Tower Records will start somewhere north of $90 million, a bargain-basement sum that provides further evidence of the once-powerful retailer's epic woes.



Tower disclosed Thursday it received a bid of somewhere between $90 million and $95 million from Great American Group, a liquidating firm that Tower designated as the "lead bidder" in the court-supervised bankruptcy auction for the West Sacramento-based music retailer. Great American's bid establishes a minimum that other bidders, including those that have said they want to keep Tower alive, will have to surpass during an auction set for Oct. 5.

While the selection of a liquidator as lead bidder may have unnerved some in the music industry, major record companies expressed confidence that Tower could survive.


"We expect additional bids. It's the beginning of a process," said Michael Bloom, a lawyer for the major record and video companies. The companies are rooting for Tower to survive "because Tower stores and the brand are important to the industry," Bloom said.

It's impossible to predict how much someone would pay for Tower. Great American's bid is only for the company's inventory. Buying the whole company, including its much-admired brand name and other assets, would almost certainly add to the total price tag.

Nevertheless, the Great American bid suggests how much the trend-setting Tower has suffered at the hands of Internet downloading and big-box discounting.

In 1990, when the company was roughly the size it is now in terms of revenue, Forbes magazine estimated Tower would be worth about $325 million if it were a publicly traded company.

Two years ago, according to Billboard magazine, Tower rejected a purchase offer of $170 million.

With bidding starting in the $90 million range, it's questionable whether the Tower sale would raise enough to cover the retailer's roughly $210 million in debts. That means some creditors are likely to walk away with nothing or less than full value for their debts.

Tower has been up for sale since February and filed for Chapter 11 reorganization Aug. 20 as a means of speeding up the sale process. The filing in U.S. Bankruptcy Court in Delaware came after Tower endured a three-week standoff with the major record and video companies, which halted shipments of new product when Tower balked at paying its bills. Tower is now paying cash for product but doesn't have the resources to adequately stock its stores for the December holidays. As a result, it's urging the court to approve a quick sale.

Great American's lead bid kicked off a two-step process that is supposed to culminate in a wide-open auction Oct. 5 at a Wilmington, Del., law office.

Designating a lead bidder "will stimulate activity for the future bidding process," Rebecca Roedell, Tower's chief financial officer, said in papers filed Thursday in bankruptcy court.

Auction participants must submit their initial bids by Sept. 26.

At least 12 potential bidders have expressed interest in Tower, the company has said in court papers. They include Tower founder Russ Solomon, whose family still owns 15 percent of the business; several private-equity firms; and retail giant Trans World Entertainment Corp. of Albany, N.Y. Great American is allowed to participate in the October auction.

Legal experts say it's common in bankruptcy sales to start the auction by establishing a lead bidder. That gives creditors and other players in the bankruptcy some confidence that the business can fetch a decent price.

"It's a safety net. It's perceived as drawing (other) real bidders out of the woodwork," said Marc Barreca, a Seattle bankruptcy lawyer not connected to the Tower case.

"It locks in a floor price. It means that's where the bidding's going to start," said Daniel Glosband of Boston, another bankruptcy lawyer not involved with Tower. "Otherwise you never know what's going to happen."

The lead bidder generally invests more time and energy preparing its offer than the others. As compensation, Tower will pay Great American a fee of up to $700,000 if someone else wins the auction.

The bankruptcy filing is Tower's second in a little over two years. The first ended with Tower's bondholders forgiving $85 million in debts. In return, they got 85 percent ownership.

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