I wonder whether it was tough for any of Trans World Entertainment Corp.’s shareholders to give up on the Albany company’s long-time music/movies/entertainment core when they approved selling the FYE chain to a Canadian retailer in the same line of business.
After all, Trans World started more than four decades ago with a single store called Record Town, growing to nearly 1,000 locations nationwide and $1 billion in sales before changes in taste and technology took their toll.
In the end, enough shares were voted this week in favor of the deal to sell FYE (For Your Entertainment) for $10 million to Sunrise Records and Entertainment Ltd. of Ancaster, Ontario. That gives 200 U.S. stores to Sunrise, which already has 85 stores across Canada under the Sunrise Records name and 100 in the United Kingdom that operate as HMV.
Trans World shareholders, though, were in a tough spot.
Regulatory filings by the company painted a dim financial picture: negative cash flow in fiscal 2017 and 2018, and more of the same anticipated in the near term. Bankruptcy even was mentioned if Trans World was unable to meet its obligations under a long-term revolving loan from Wells Fargo Bank.
Shareholders will receive none of the proceeds of the sale – the full $10 million will go to Wells Fargo.
Going forward, their shares will be in etailz, the Trans World segment that offers products online through the Amazon Marketplace. Acquired for $70 million in 2016, etailz is limping, too, though, and has been cinching its belt under a “performance improvement plan” implemented in late 2018.
However, without the Sunrise deal, the FYE chain was doomed.
In regulatory filings, Trans World indicated that if shareholders failed to approve the sale, it would immediately begin to wind down FYE, likely resulting in the overall company becoming “cash flow insolvent” during the coming year.
Trans World started to explore selling or shuttering all or part of the company two years ago, the filings show.
During 2018 and 2019, eight “potentially interested parties” signed non-disclosure agreements with the company. Among those talking to Trans World at various points were a couple of asset-recovery businesses and a real estate investment firm. The latter eventually suggested buying up all of the company stock for about $7.8 million, but the offer was not deemed viable.
Doug Putman, CEO of Sunrise, first made contact in November 2018.
Trans World initially floated a purchase price of $35 million to Sunrise, which Putman rejected, according to the regulatory filings. The parties agreed to $10 million late in 2019, but it still took several weeks of intense negotiations to get to a sale.
The filings show that Trans World’s board, worried about the “serious liquidity challenge” facing the company, ultimately directed management to strike the deal with Sunrise – “the only potential buyer still expressing interest.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy @gmail.com.