Tower Records up for Sale
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FOUNDED 1857 SATURDAY MAY 10, 2003 www.sacbee.com • • • $1.50 Tower Records Up For Sale By Dale Kasler Staff Writer Tower Records, humbled by debts buyers would want to keep and edging closer to bankruptcy, has those facilities intact. put itself up for sale. That would be a relief to Capping a painful, two-year struggle West Sacramento, where the to regain prosperity, Sacramento's company has kept a low profile Solomon family hired a Los Angeles but is still a major -- and presti- investment banker to find a buyer for gious -- employer. the legendary music retailer, that bank "Having a company like said Friday. Tower Records headquartered Founded in Sacramento in 1960, in West Sacramento gives us Tower grew into an international brand tremendous bragging rights," and pioneered the era of the music said Val Toppenberg, the city's Tower founder Russ Solomon, right, and son megastore. In the past few years, how- redevelopment director. Michael at the West Sacramento headquarters. ever, the rise of discounters and the The Solomons declined com- Internet sapped its strength. ment Friday. that business -- it's a turbulent time." The decision to sell followed Tower's The decision to sell wasn't surprising Greif indicated that the Solomons, declaration on April 29 that it might to many in the music industry, given whose patriarch, Russ Solomon, miss a $5.2 million interest payment on Tower's financial troubles and the founded the company, could play a its bonds. slump facing music retailers. Chilmark role in the post-sale Tower. Although Tower, which also sells Partners, a Chicago investment bank "Russ Solomon's relationships in the books, has had other brushes with hired by Tower in 2001, tried to sell industry are the envy of virtually bankruptcy in the past two years, the the company's U.S. operations with no (everyone). I would be extremely sur- most recent declaration seemed to luck, Chilmark said in court papers prised to see him not involved in bring Tower's problems to a head. Cli- filed in connection with a lawsuit Tower's future," he said. mactic, high-level negotiations ensued against Tower. Solomon and son Michael control between Tower and its creditors over Tower denied that in court docu- practically all the ownership in Tower. the troubled company's future. ments, but it did sell its Japanese stores The son is the company's president, What resulted was a plan calling for last year as a means of raising desper- and the father, chairman, remains a bondholders to exchange their debts for ately needed cash. daily presence at the West Sacramento ownership in Tower. The West And last fall, interim Tower Chief headquarters, Greif said. Sacramento-based company's debts Executive Betsy Burton -- brought in at The sale would come as music retail- would be reduced while the sale of the the insistence of Tower's bankers to ers face a historic crisis. Greif said he's company would give bondholders a overhaul the company -- told The Bee confident a sale can bring "fair value," way to cash out. that the whole company could wind up but others were skeptical, noting that Bondholders and other creditors have being sold. While she was CEO, the Best Buy Co. already has put its strug- agreed to the proposed sale, said Lloyd company closed underperforming gling Musicland division, which in- Greif, president of Greif & Co., the Los stores and trimmed the corporate pay- cludes the Sam Goody chain, up for Angeles-based investment banker hired roll. sale. by Tower. Despite its apparent inevitability, a "We now have two failing music re- "Everybody to my knowledge is on Tower sale was seen as a milestone in tailers on the market," said Colin Mc- board," Greif said. music industry history. Granahan, an analyst at Sanford C. He predicted a relatively quick sale "They're a long-standing, major re- Bernstein & Co. in New York. "It's and said there's a good chance of sur- tailer of music," said Don Gorder, a usually a hard-enough sale when vival for Tower's 500-employee head- music business expert at Berklee Col- there's only one." quarters and distribution center in West lege of Music in Boston. "It's just an- Tower's short-and long-term debts Sacramento. He said he thinks most other harbinger of what's going on in total $358 million. Analysts said that's too high for a company that has re- late '50s and early '60s, Tower was, lic bond sale -- a legacy of more opti- duced itself to about 101 stores through like, your favorite store," said former mistic times. The bond isn't due until sales and closures. Tower used to do $1 Beach Boys manager Fred Vail, an old 2005, but the company has been mak- billion a year in revenue, but is down friend of the Solomons who shopped ing regular, twice-a-year interest pay- to about $600 million to $700 million. the Watt Avenue store in the early ments of $5.2 million. A spokesman for the big bondhold- days. "It was like mecca for music Last month, Tower replaced Burton ers, several insurance companies junkies." with E. Allen Rodriguez, a former Uni- owned by American International The gruff, irascible Solomon -- vision Communications Inc. executive Group Inc. of New York, did not return whose eccentricities included a pen- with investment banking experience. phone calls. Tower's lead banker, CIT chant for confiscating the neckwear of Three days after his appointment be- Group/Business Credit Inc., also had anyone who dared visit his office in a came official, Tower announced it was no comment. tie -- became a leading figure in the delaying the regular bond interest pay- The music industry, which is owed industry. ment by 30 days and might not pay it at tens of millions of dollars by Tower for Tower ventured outside Sacramento all. CDs, pledged to continue doing busi- for the first time in 1968, when The delay was permissible under ness with the retailer. Solomon opened a store near San Fran- Tower's bond deals but signaled that "Tower is a very, very major force cisco's Fisherman's Wharf at the height problems were worsening. Moody's for the record companies," said Jim of the city's pop music explosion. The downgraded Tower's bond ratings to Urie, president of Universal Music and company began mushrooming, and in the lowest possible: "C." Moody's de- Video Distribution. "We're going to 1979, it opened for business in Tokyo, fines such bonds as having "extremely support that as much as we can." the start of a huge overseas expansion. poor prospects." Despite the monumental woes facing By the late 1990s, when Solomon Industry officials began speculating music retailers, Greif said, several po- promoted son Michael from general about a bankruptcy filing. Then reports tential buyers have expressed an inter- counsel to CEO, the company owned circulated that the Solomons were est in buying Tower. 217 stores, was ranked as the No. 2 working to persuade bondholders to "Tower is the créme de la créme," music retailer in the United States and accept a debt-for-equity swap, culmi- Greif said. "When you've got that sold $1 billion in merchandise annu- nating in Friday's confirmation that strong of a brand, that's what's going to ally. Tower was on the block. be attractive." But the industry was changing -- dis- He said a sale could be announced astrously so for Tower. New competi- Tower Records became an interna- fairly quickly. tion came from discounters such as tional icon of the music business. Russ Greif wouldn't identify potential pur- Target and Best Buy, booksellers Bor- Solomon founded the company in 1960 chasers but said there's interest from ders and Barnes & Noble, and Internet with a store on Watt Avenue in Sacra- "nontraditional buyers" interested in merchant Amazon.com. mento. exploiting Tower's good name in the Retailers also fell victim to the onset entertainment business -- and taking of so-called digital piracy, in which Official corporate name: MTS Inc. the company far beyond the realm of computer users downloaded free music music. Although the company has al- off the Web from Napster and its suc- Headquarters: West Sacramento, ready moved into non-music items cessors. where employees number 500 such as DVDs and memorabilia, Tower lost $168 million over 4 1/2 "there's a lot of products that could be years. Moody's Investors Service and Ownership: Solomon family of Sacra- sold in Tower that aren't being sold Standard & Poor's, the two leading mento there now," Greif said. credit-rating firms, downgraded A restructured Tower, with a signifi- Tower's debt to low "junk" status, indi- Founder and chairman: Russ cantly reduced debt burden, could be- cating the peril Tower faced. Solomon come "a growth company again," he Facing a $187 million bank payment said. in April 2002, the company sold its President: Michael Solomon A sale nonetheless would mark the still-successful Japanese stores, bring- end of an extraordinary era, begun in ing in cash to pay down debt and CEO: E. Allen Rodriguez Sacramento in the 1940s, when 16- prompting banks to provide new fi- year-old Russ Solomon began selling nancing. Company-owned stores: 101 records from the back of the family- Debt analysts said the move probably owned Tower Drugs on Broadway. staved off bankruptcy but was hardly a After a stint in the military and a cure-all. They noted that the Japanese couple of false starts in the record busi- stores were the most profitable in the ness, he got Tower Records going for chain.