More on WWBW from MMR Magazine

 Steinway Enters Bid for Woodwind & Brasswind

 … $40.5 million offer may signal bidding war with GC

On Dec 5, Steinway Musical Instruments, parent company of Conn-Selmer Inc., said it will pay $40.5 million for South Bend, Ind.-based Woodwind & Brasswind, creating the potential for a bidding war with WW&BW’s other suitor, the Musician’s Friend division of Guitar Center.

The Steinway bid is $3.4 million more than the Nov. 22 offer from Musician’s Friend. Judge Harry Dees had scheduled a hearing yesterday (Dec 7) in U.S. Bankruptcy Court in South Bend to approve the bid rules governing the sale.

Companies trying to sell their assets under Chapter 11 protection must submit to an auction procedure even when a buyer has come forth to ensure creditors can recover as much as possible of what they are owed.

On Nov. 22, Guitar Center announced it has signed an asset purchase agreement to acquire substantially all the assets of The Woodwind & The Brasswind under section 363 of the United States Bankruptcy Code. Under the terms of the agreement, Guitar Center would acquire Woodwind & Brasswind's inventory of band and orchestra and combo instruments, accounts receivable, trade names, and certain other intangible assets.

The Woodwind & The Brasswind filed for Chapter 11 bankruptcy protection in Indiana on Nov. 21. Under the agreement, only very limited trade obligations and other pre-petition liabilities of The Woodwind & The Brasswind are being assumed.

The demise of the South Bend, Ind.-based dealership, which booked 2005 sales of $136 million (down from $145 million in 2004), appeared to stem from the outcome of a lawsuit involving former minority partners Stephen and Richard Zapf. The Woodwind & The Brasswind had acquired Philadelphia-based Zapf Music Stores, Inc. in 2002, with the former brick-and-mortar business becoming the Internet-only marketer Music123.  While Music123 prospered following the deal with sales escalating from $20 million to $58 million annually over the next three years, the relationship between the Zapf brothers and Woodwind CEO Dennis Bamber soured, and both Zapfs were terminated in 2004. The Zapfs then sued, Woodwind countersued, and the court found in favor of the Zapfs in September to the tune of $9 million. In a report published in the South Bend Tribune, Bamber said the bankruptcy filing was necessitated to protect the company from the outcome of the lawsuit. The court filing also cited the costs involved with closing a New Jersey distribution facility and the opening of a new distribution center, as well as an $800,000 expense related to software licensing and upgrades.

In an article published in the Dec 7 Elkhart Truth newspaper, WW&BW founder Dennis Bamber said he anticipates a third bid for the company coming from Stephen and Richard Zapf.

The trade was taken by surprise by the Steinway bid, with some questioning whether the manufacturer would enter the band and orchestral retail arena and thus jeopardize relationships by competing head-on with its Conn-Selmer dealer network. Many in the business think the Steinway offer may simply be a move to drive the sale price up on the assets of WW&BW, giving Conn-Selmer – its largest unsecured creditors [see sidebar] -- an opportunity to recoup a greater share of its losses.