Suitors Looking Into Musicland Chain
Primerica, parent of the Smith Barney investment firm, said Tuesday that it has received overtures concerning the possible purchase of Musicland Group, which owns nearly 100 Sam Goody music stores in California.
Musicland, the nation’s largest music retailing chain, operates 616 stores nationwide, including 34 that it bought from Licorice Pizza in 1986. For 1987, the company reported net income of $22.6 million on sales of $510 million.
Industry analyst Keith E. Benjamin, with the Silberberg, Rosenthal & Co. investment house in New York, expressed surprise that someone apparently has come forward willing to pay the price that he estimates Musicland is worth. He figured that Minneapolis-based Musicland, which he called the nation’s premier record and tapes retailer, would bring at least $35 and possibly as much as $40 for each of its 11.3 million shares, making the total value $396 million to $452 million.
Tuesday’s announcement boosted the price of Musicland shares by $5.25 to $29.50.
“Given the uncertainty of the stock market and the economy, it’s a little shock that somebody seems willing to come up with a price anywhere near what I think they would want,” he said.
It has been known for some time that Primerica, formerly American Can Co., was seeking to sell divisions unrelated to its core business of financial services.
Sees Group as ‘Prize’
The company, based in Greenwich, Conn., is under pressure from credit rating agencies to reduce the heavy debt load it incurred in its $750-million purchase of Smith Barney. Primerica owns 81.4% of Musicland. Also on the block is Fingerhut Cos., a top mail-order retailer with $1 billion in sales.
Russ Solomon, president of Tower Records, second in sales volume to Musicland with $330 million last year, views Musicland as “a prize piece of property” with excellent management. The company is led by Chairman and Chief Executive Jack Eugster, who joined the company in 1980 after having worked for the Gap, a specialty apparel retailer.
But Solomon said he hadn’t “the foggiest idea” about who might buy Musicland.
As for possible buyers, Benjamin sees a foreign retailer as the most likely candidate. Other possibilities would be another music retailer or a U.S. clothing retailer interested in a counter-cyclical business such as Musicland’s.
Musicland is the second music retailer with major holdings in California to draw the interest of prospective buyers recently. In December, a New York investment firm, acting as a friendly suitor, offered $118 million for Wherehouse Entertainment. That bid by Adler & Shaykin topped a hostile bid from Shamrock Holdings, a Burbank investment firm owned by the family of Roy E. Disney.
