Although the efforts of financial company Hicks, Muse, Tate & Furst to acquire Tower Records appear to have hit a roadblock, the chain's management and owners are still working toward a potential

Although the efforts of financial company Hicks, Muse, Tate & Furst to acquire Tower Records appear to have hit a roadblock, the chain's management and owners are still working toward a potential sale, sources say.

Sources suggest that the Yucaipa Cos. -- the California-based investment firm headed by Ron Burkle that was knocked out of the early rounds of bidding for Tower last summer -- is looking at the chain again. Yucaipa also owns Alliance Entertainment Corp., one of the largest U.S. music and video wholesalers.

While talks with Hicks, Muse, Tate & Furst have broken down, some sources suggest that the Dallas-based firm is sitting on the sidelines, waiting to see how things play out. It's unclear what went wrong with the firm's bid to buy Tower. Some sources say Hicks, Muse withdrew on its own, while others say Highland Capital -- one of the bondholders that converted its debt into Tower equity -- knocked the firm's bid out of contention.

Even as Yucaipa is looking at Tower, some sources suggest that Highland Capital is engaged in an effort to become a majority owner in the chain. Those sources say Highland is preparing a tender offer to buy out the other bondholders that became Tower's owners as part of the chain's pre-packaged Chapter 11 restructuring. If successful, Highland would have the choice of holding on to the chain -- which would also require it to invest more funds to refurbish stores -- or proceeding with a Tower sale to Yucaipa; Hicks, Muse; or any other interested party.

Tower Records is much more attractive as an investment opportunity than it was when it was first put up for sale. The chain is said to be on track to have its first profitable year in five years. Sources say Tower is projecting $15 million-$20 million in net income in its current fiscal year. They also say Tower's worth has almost doubled in the last year and that it would take $170 million-$200 million to get a deal done.

None of the companies cited above returned calls for comment.

Questions? Comments? Let us know: @billboardbiz

Print