Assets of Mars Music to be Auctioned Thursday
October 21, 2002
The Mars Music superstore chain has
abandoned plans to re-organize under its current ownership and will
liquidate its assets.
A bankruptcy auction will be held this Thursday in Florida.
Liquidator Great American Group has entered an opening bid for all the
assets, with plans to liquidate Mars' substantial inventory this fall in
"going-out-of-business" sales at the Mars store locations if no higher bids
come in.
Other potential bidders, however, are reportedly considering buying the
assets in order to keep at least some of the stores open under new
ownership.
According to the bankruptcy filing, several interested parties have already
signed non-disclosure agreements and are reviewing both Mars' operations and
potential business plans. Aside from liquidators, potential bidders could
include investment groups, as well as other MI retailers looking to expand
their geographic reach.
Mars founder and CEO Mark Begelman has resigned from the company and the
Mars board, but it is not known whether he is working with any of the
potential bidder groups.
Mars originally filed Chapter 11 bankruptcy with the intention of closing
underperforming stores, arranging new financing, and continuing with a
trimmed down operation. The company put together business plans for both 29
and 20 store chains.
In the end, however, the company could not obtain financing, and decided it
had "little choice but liquidate [its] assets," according to bankruptcy
documents.
The liquidation could mean bad news for many in the musical instrument
industry, both because many manufacturers may not be paid in full -- or at
all -- for goods sold to Mars, and because massive liquidation sales this
fall in several major markets could depress sales for other retailers.
As of October 6, 2002, Mars had $63.7 million of inventory at cost, plus
another $1.1 million of inventory in a rental pool, according to the
bankruptcy document. This inventory has declined since that date as
inventory was sold, without new goods coming in. The liquidator has agreed
to pay roughly 74% of the at cost value of the new inventory if its bid is
approved, and roughly 26% of the at cost value of the rental pool inventory.
Congress Financial, Mars' primary lender, is owed about $33 million in
secured loans.
Unsecured creditors generally receive payment only after and if secured
creditors are paid. Certain other expenses, including attorneys' fees and
costs incurred after the start of bankruptcy, also enjoy preference over
unsecured creditors.
Nineteen of the twenty top unsecured Mars creditors are musical instrument
are accessories vendors, with claims totaling over $13.6 million according
to the bankruptcy filings. They include:
- Roland Corporation $ 1,923,424.51
- JBL Consumer Products $1,748,796.78
- Fender Musical Instruments $1,722,773.43
- Gibson Nashville $ 908,838.99
- Kaman Music Corporation $ 882,181.78
- Korg USA, Inc. $ 878,166.09
- Pearl Corporation $ 700,769.44
- Mackie Designs $ 649,881.98
- Washburn International $ 631,551.17
- Jupiter Band Instruments $ 552,225.98
- Crown International $ 520,462.37
- Shure Brothers Inc. $ 506.988.43
- Audio Technica $ 345,768.88
- Zildjian $ 326,012.29
- Line 6, Inc. $ 323,830.12
- Taylor Guitars $ 299,105.82
- American DJ Supply, Inc. $ 258,650.48
- Gemini Sound Products $ 256,760.70
- Warner Brothers Publications $ 219,940.09
Creditors with claims too small to put them in the top 20 are not disclosed
in the current filings, but it is certain that other musical instrument
companies are among those with smaller -- but still significant -- unsecured
claims.
Mars bankruptcy attorney Paul Battista said that there is still hope that
unsecured creditors might receive some payment, but that it is uncertain.
"The Debtor and the Committee are hopeful that monies will be available for
unsecured creditors. We will not know for sure until several other matters
get resolved."
Beginning with the acquisition of a small chain of Florida-based music
stores in 1996, Mars pursued a very aggressive expansion plan, building
dozens of superstores through the South and some far reaches of the US,
complemented by an e-commerce web site.
At its peak, Mars Music consisted of 50 stores, but had already reduced its
size to 41 stores by the time of the Chapter 11 filing.
For more information, visit their web site at www.marsmusic.com. |
