Provided by
Trans World Entertainment Corp. Chairman and CEO Robert J. Higgins has withdrawn his proposal to buy out other shareholders and take the music, movie and video game retailer private.
The company announced Higgins' decision after stock markets closed May 6. The stock dropped sharply on the news today.
Trans World stock closed at $2.44, down 83 cents, or 25.4 percent, on May 7. Volume was very heavy. Nearly 150,000 shares were traded, which is 5.5 times the average daily volume of the past 50 days.
Content Continues Below
Higgins told a special committee of the board of directors that "continuing poor credit market conditions have substantially increased the costs and burdens of the debt financing" needed to acquire the company, according to a prepared statement.
Higgins was traveling today and unavailable for comment.
Based in Albany, N.Y., Trans World (Nasdaq: TWMC) operates more than 800 stores, most under the name f.y.e. (For Your Entertainment). The company has about 600 employees at its administrative headquarters and distribution center at 38 Corporate Circle.
As of today, Trans World is the seventh-largest publicly owned company in the Albany region, based on a market capitalization of $102 million.
Trans World has struggled with declining sales as more people turn to computer downloading and big-box stores to buy music. The company has tried to adapt by changing its mix of inventory to rely less on music, but CDs still accounted for 39 percent of sales last year. Comparable-store sales of music fell 23 percent last year. The company did see growth in sales of DVDs, video games, electronics and accessories, but it hasn't been enough to overcome the steep decline in music.
The company suffered a net loss last year of $99.4 million, or $3.20 per share. The loss included $74.1 million in non-cash tax and asset impairment charges in the fourth quarter.
Taking the company private would have saved money in administrative costs and given Higgins and the management team a freer hand to make changes in how the business operates.
At least one shareholder was pleased Higgins withdrew the offer to go private.
Gary Greenberg of Valatie, who has owned Trans World stock for 17 years, said the company is worth more than $5 per share. The timing isn't right for a sale.
"Selling the company in a down cycle wouldn't necessarily be the best move," said Greenberg, a state worker.
Higgins, who founded the company in 1972 and took it public in 1986, teamed up with another shareholder, Bryant Riley of Riley Investment Management in Los Angeles, on the buyout offer last November for $5 per share. Together they own 57 percent of the outstanding shares.
At $5 per share, they needed $56.4 million to buy out the remaining 19.9 million shares.
But, after six months of considering the options, Chief Financial Officer John Sullivan said "it didn't make any sense" to take on the debt to buy out the company because of the interest rates.
The company's existing line of credit is at a "very good interest rate," Sullivan said.
Although there are no other pending proposals to acquire the company, Trans World said in the prepared statement that it "may become engaged in confidential negotiations, including for a sale of the company, without prior notice in the future."
Sullivan said he wasn't aware of any active negotiations, but added, "If something were to come along we would consider it, frankly."
An offer from another investor, Sherwood Investment Overseas Ltd. is off the table, said Julian M. Benscher, the authorized signatory of Sherwood in Orlando, Fla.
Sherwood had originally offered $7 per share but dropped the price after conducting its due diligence of the company, Benscher said. He declined to divulge the lower price but said there was no formal counter-offer. The door remains open for a possible deal in the future, he said.
"One of the things we concluded was the plan that management is currently executing is a very good one," Benscher said. "They are fully cognizant of what their [inventory] mix is and where it should be optimized. They get a very accurate data feed from their stores and position themselves accordingly. They're a well-run outfit."
The past six months have been hard for employees concerned about the company's future, but Sullivan said they were assured they wouldn't lose their jobs if the company went private.
"There's no question we've had some difficult times over the past couple of years, and we've managed through difficult times," Sullivan said. "We're managing the business to the current economic times."
That climate is rough because Trans World relies so heavily on music CDs for revenue, said Edward Woo, an analyst at Wedbush Morgan Securities Inc. in Los Angeles who tracks Trans World.
"A whole generation is getting use to listening to stuff online," Woo said.
Video games and electronic accessories have been a bright spot for the company, but they only made up 22 percent of sales last year. Woo said one of the questions is whether Trans World can transform into a company known more for its video games and other products than music.
"All is not doom for this company," Woo said. "They still have a relatively decent balance sheet. They have a good brand name. They're the last-standing music retailer and have a very experienced management team. There is still some value left in their business if they could get rid of their under performing stores."
© 2008 American City Business Journals, Inc. All rights reserved.