As was foreshadowed in a filing late Thursday (see “Filing Indicates”), the U.S. Bankruptcy Court for the District of Maryland has approved the sale of assets and ongoing business of Diamond Comic Distributors, Alliance Game Distributors, Diamond Select Toys & Collectibles, and Collectible Grading Authority to Alliance Entertainment in an order today.
The process began on January 14, when the Diamond companies filed for reorganization under Chapter 11 bankruptcy (see “Diamond Files”). An auction was held on March 24 and 25 (see “Plans for Auction”), at which seven companies were bidders for some or all of the assets (see “Auction Reveals”), and Alliance Entertainment was declared the winner (see “Alliance to Acquire Diamond”).
After the completion of the auction, Diamond tried to change its choice of the winning bidder, and Alliance Entertainment sued to enforce its successful bid (see “Alliance Sues”). After a hearing this week, an Asset Purchase Agreement between Diamond and Alliance Entertainment was signed, and the order was entered approving the sale. Alliance Entertainment has now dropped its lawsuit.
The purchase price will not be finalized for some time, but the outline was contained in the Asset Purchase Agreement.
Alliance Game Distributors will be purchased for $36,865,000, less $6,770,735 (the defined amount for Average Net Working Capital), plus 90% of the value of Alliance’s closing inventory, and 90% of the value of Alliance’s accounts receivable aged less than 90 days. The purchase amount will also be reduced by cure amounts that Alliance Entertainment will pay directly to Alliance Game Distributors creditors whose contracts are being assigned.
That list of Alliance contracts being assigned and major cure amounts includes Arcane Tinmen ($136.967), Bandai ($3,122,733), Dire Wolf Digital ($303,645), Goodman Games ($160,974), Paizo ($139,446), PSI ($377,611), Renegade Games ($164,968), Army Painter ($598,974), and The Pokemon Company International ($283,802; TCPI has an extended period to object to the assignment). Wizards of the Coast is listed as a contract to be assigned without a cure amount. Konami is listed as a contract to be assigned with a smaller ($26,400) cure amount. Another 17 Alliance Game Distributors contracts are to be assigned with smaller or no cure amounts.
The remaining assets, listed as Lot B (which presumably includes comic distribution, Diamond Select, and CGA) will be purchased for $21 million, less cure amounts paid to creditors whose contracts are being assigned, and plus Incentive Amounts, based on the value of inventory sold and accounts receivable collected of the Lot B entities by the end of 2025. The Incentive Amount will be the greater of $5 million or an amount calculated based on what Alliance Entertainment collects of the receivables of the Lot B entities, and on what Alliance Entertainment sells of the inventory of the Lot B entities.
Assigned contracts and cure amounts related to the comic distribution business include Viz Media, LLC ($268,308), Spin Master ($93,688), Comic-Con ($0), and a handful of others; there are also a number of Diamond Select contracts being assigned with smaller cure amounts.
It’s unknown what those amounts will all add up to once calculated based on final numbers, although Alliance Entertainment estimated in its lawsuit that the amount of its purchase price would total $85,368,053. Also unknown is the fate of the unsecured creditors of the Diamond companies. For the unsecured creditors to receive 100% of what they’re owed, the purchase price will have to cover the bank debt; the costs of the bankruptcy, including fees to attorneys, restructuring consultants, the investment bank, and the DIP lender (which is in line for a fee based on the purchase price); the break-up fee to Universal Distribution for its stalking horse bid; taxes, and employee obligations before unsecured creditors are paid.
There are also some excluded assets, including Diamond UK, which could presumably be sold to raise money, although much smaller amounts, for creditors and costs.
While the Alliance Entertainment purchase price estimate is greater than the liabilities listed by Diamond as of its filing, there have been a lot of costs incurred since then, and likely operating losses. Regardless, the purchase price is much larger than it appeared might be paid based on the $39 million stalking horse bid, so the results of the auction have been positive so far.
The closing date is set as April 25, although it can be changed by the agreement of the parties.
Next up: how will Alliance Entertainment change the comics, game, and merch distribution businesses as it integrates the acquisition into its existing operations? While its existing operations give some clues (see “Intro to Alliance Entertainment”), a lot of uncertainty remains on what’s next.
What is certain is that the Diamond era of comic distribution is drawing to a close after decades of a near-monopoly (see “Diamond Bankruptcy – A Sad Ending”) with big changes afoot, and that the game distribution business is about to be transformed by a new competitor.
Source: ICV2
