Sunrise Records has completed its acquisition of Trans World Entertainment assets, including the FYE chain, which gives the Canadian-based chain that also owns HMV about 400 outlets in North America and the U.K.
While the agreement calls for Sunrise to pay Trans World $10 million for the assets, it also applies a formula that could see the final price at about $11.5 million. That’s based on Jan. 20 inventory levels at the retail chain worth $44 million, according to the filing. Trans World will continue to run online merchandiser eTailz, which it bought for $36.7 million in cash and 5.7 million in shares in October 2016.
As part of the deal, the Trans World assets Sunrise acquired include all accounts or notes receivable; all inventory, all property leases, all cash equivalents and other monies derived from the operation. In addition to acquiring the assets of Trans World, Sunrise also assumed certain liabilities such as up to $2 million in gift cards and customer loyalty discount cards, and employment compensation obligations; and — most importantly to labels and distributors — all inventory-related accounts payables and related liabilities.
Shareholders approved the deal on Feb. 13. Proceeds from the transaction will be used to pay down the company’s revolving credit facility, leaving shareholders out in the cold. Moreover, the company said it would take cost-cutting measures, including delisting from the NASDAQ stock exchange, which if that happens likely means the company will be listed as a “pink sheet” stock, with nearly 40% of the company still owned by the Robert J.Higgins TWMC Trust.
In the proxy explaining the sale, management and the board said it had no choice due to the “significant diminishing liquidity position” of the company. The proxy said management had been exploring strategic options for almost two years, and considered among other things, shutting down the chain. The proxy says it initially offered to sell the chain to Sunrise for $35 million, but apparently Sunrise president Doug Putnam negotiated the price down to the $10 million level.
The deal brings Sunrise into the U.S. where FYE has about 200 stores. Sunrise’s also operates 85 Sunrise and HMV stores in Canada and about 115 HMV stores in the U.K.
Trans World share price closed up 20 cents at $3.50 on Thursday (Feb. 20) before the acquisition’s expected completion was announced hours later.
Feb. 21: This article has been updated.