Sunrise Records, the Canadian chain that acquired HMV’s stores in Canada in 2017 and bought HMV’s stores in London, has signed a definitive asset purchase agreement for the Trans World FYE chain.
According to the announcement and the purchase agreement filed with the Securities Exchange Commission, Sunrise will pay $10 million in cash and, in return, take over ownership of the 200-store chain –– assuming some of the chain’s liabilities including accounts payable, store leases, and the chain’s frequent buyer membership program while also gaining a target inventory of $40 million. It will also take on all FYE employees. The deal is expected to close by the end of the first quarter.
With the company having about $30 million in accounts payable to suppliers as of Nov. 2 — an amount that could have since changed — the deal seems structured so that the buyer is essentially paying for the inventory in the chain’s stores and warehouse. The asset purchase agreement says that every dollar in inventory above $42 million on the deal’s closing date, will add another 50 cents to the cash payment. So if net inventory turns out to be $50 million on closing date, that means that the cash payment would rise $4 million to $14 million. But other contingent factors could also lower the price.
At the end of FYE’s third quarter, the chain had an adjusted operating loss of about $16 million but when impairment charges and amortization and depreciation are taking into consideration, the total operating loss was $37.9 million on $127.6 million in revenue.
The chain and its parent company looked like it was headed to its third straight year of red ink. For the nine-month period ended Nov. 2, 2019, Trans World Entertainment, including eTailz, its online based merchandising operation, posted a $39.1 million loss, or $21.51 per share. At the time, its 10-Q filing said there is “substantial doubt about the company’s ability to continue as a going concern” for the next year.
If this acquisition closes, Sunrise Records will now run about 291 stores in North America — 85 in Canada and 206 FYE stores — and operates 114 HMV stores in the U.K ., including the superstore it opened in Birmingham last October.
On news of the deal, Trans World share price has shot up, trading today in a range of $4.76 to $9.72 with it priced at $7.50 closing at $6.75 2PM today, giving it a market capitalization of $14.27 $13.43 million, according to Yahoo! Finance. Yesterday, the stock closed at $2.88, which gave it a market capitalization of $5.3 million.