Bidders Get in Line to Buy Music Retailer’s Assets
Tower Records is having the biggest sale in its history: Everything must go.
The iconic music retailer was put up for sale after it filed for bankruptcy protection in August for the second time in less than three years.
For the record:
12:00 a.m. Oct. 11, 2006 For The Record
Los Angeles Times Wednesday October 11, 2006 Home Edition Main News Part A Page 2 National Desk 0 inches; 37 words Type of Material: Correction
Tower Records: A photo caption with an article in Thursday’s Business section about Tower Records being put up for sale said the Tower store in the photo was in Los Angeles. The store is in West Hollywood.
Sixteen companies have qualified to bid for the West Sacramento-based firm’s assets, including its inventory and the real estate at many of its 89 stores still operating in 20 states.
At a minimum, Tower’s inventory will sell for about $90 million, the sum that Great American Group, a Los Angeles-based liquidation firm, is estimated to have committed to get the auction going. The court, in this case, required a guaranteed opening bid for the inventory to make sure assets would not be sold at unfair prices. Tower owes creditors about $210 million, according to sources.
Bidders can offer to purchase the whole company or specific parts and would be free to operate the company or sell off assets and dissolve the firm. The auction is scheduled to give new owners time to take advantage of the holiday retail season.
“Tower is still associated with the fact that it can be fun to discover and buy music,” said Geoff Mayfield, senior analyst at the music industry trade publication Billboard. “The brand has value. I think whoever wins the auction will want to continue using the Tower brand, whether the chain survives or not.”
Other bidders include Trans World Entertainment, which bought some Musicland assets this year. One of the largest music retailers in the country, Trans World operates several regional chains and could bid for the best Tower locations. Only 13 of the chain’s stores are currently losing money, according to a Tower Records source.
Another bidder is CD Listening Bar, which wants to buy Tower Records’ Web address.
A number of real estate companies are also bidding.
Russ Solomon, Tower’s colorful founder, decided not to participate in the auction, which will take place at a Delaware law firm.
“The company has been owned by institutional investors for the last few years, and there hasn’t really been a visionary at the top of the company,” said a Tower Records insider who requested anonymity because of the delicacy of ongoing negotiations. “Tower is kind of like a classic car: There might be a little rust on the carriage, but it’s definitely restorable.”
Solomon founded Tower in 1960, when he began selling records out of his father’s Sacramento drugstore. In less than a decade, the chain expanded to San Francisco and Los Angeles, and soon thereafter across the nation and abroad.
Tower pioneered the mega-store concept, building multilevel outlets with exhaustive inventories and knowledgeable staffs. Tower’s late-night hours and in-store concerts drew devoted crowds. By the mid-1990s, Solomon was one of America’s richest men.
But soon afterward, profit at Tower and other music-only retailers began to decline as a result of pressure from Internet piracy and chains such as Best Buy Co. and Wal-Mart Stores Inc. Retail music sales fell 17% from 2000 to 2005, according to the Recording Industry Assn. of America.
The company modernized its approach for the digital era, launching an online store to sell downloaded tracks for 99 cents apiece. This year the company named crisis management and bankruptcy specialist Joseph D’Amico as chief executive. In August, Tower stopped paying record companies for outstanding invoices.
The company declared bankruptcy and said it would auction assets to pay debts rather than attempt to restructure and emerge from bankruptcy.
“The industry is really hopeful someone will buy the chain and keep it intact,” Billboard’s Mayfield said. “The record labels need healthy retailers.”
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* Parent company: MTS Inc.
* Founded: 1960
* Headquarters: West Sacramento
* Chief executive: Joseph D’Amico
* U.S. properties: 89 stores, including 22 in Southern California
* Overseas properties: 144 stores in nine countries
* Bankruptcies: Filed for Chapter 11 in February ’04 and August ’06
Source: Times research