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Tower Records again for sale

The music retailer has changed top management for the third time in four years, and the new CEO says his main goal will be to sell the company.

Joseph D’Amico has been named as the new interim CEO of music retailer Tower Records, announcing at the same time that his main priority will be to sell the company.

D’Amico, a Chicago consultant who specializes in troubled companies, is replacing Allen Rodriguez, who presided over Tower during its entry into and exit from Chapter 11 bankruptcy.

“Tower presents a rare opportunity for the right party to leverage a renowned brand name, unique physical locations and an award-winning online presence to turn Tower Records into the preeminent entertainment retailer in the US,” D’Amico said in a prepared statement.

With private equity firms becoming increasingly drawn to the retail sector, Tower may attract a number of suitors from the asset class. KKR and Apollo’s reported $4.7 billion (€3.7 billion) bid for shoe retailer Foot Locker this month demonstrated retail’s allure for private equity. Apollo has also recently acquired Lord & Taylor and Linens n’ Things.

In February Billboard Magazine reported that MTS, the parent company of Tower Records, had retained Los Angeles investment banking firm Houlihan Lokey Howard & Zurkin to handle a sale of the company. According to reports, at least five potential bidders have expressed interest.

The company has been controlled by its bondholders since it exited from bankruptcy in March 2004. The company had fallen behind in debt payments and was forced to reorganize that year in a structured chapter 11 bankruptcy that left it mostly under the control of its creditors. The family of Russ Solomon, who founded the company in 1960, retained a 15 percent stake.

The company grew rapidly in the 1990’s but, like other specialty music retailers, it has run into trouble recently as it struggles to compete with discounters, internet music sellers and legal and illegal digital music downloading. The company has 89 stores in the US and licenses the brand name for 144 stores in nine foreign countries. It also sells music through its web site, www.tower.com, and recently began offering digital music downloads. The company has announced its intentions to sell three times in the last five years.

Although private equity interest in retail has been increasing, firms may be discouraged from entering the specialty music retail sector after observing Sun Capital’s disappointing investment in Musicland, the company that operates the Sam Goody, Suncoast and Media Play retail outlets. Last year Musicland was forced to declare bankruptcy and in January closed its 61 Media Play retail locations. Sun Capital had acquired the company in 2003 from Best Buy even though the division was costing Best Buy roughly $72 million a year in operating losses at that time. Betting that music piracy would abate and consumers would return to music retailers, Sun reportedly took out a $75 million revolver for working capital in 2003 and sank $25 million into the company in 2004.