February 8 – February 15, 2007 Edition

Update on AMS
Bankruptcy Case,
Levy Potential Buyer?

SAN DIEGO, CA/2/6/07—A half-dozen employees of bankrupt American Marketing Services (AMS), may be joining Levy Home Entertainment, in Levy’s newly-opened San Diego office, sparking rumors that the major book distributor could potentially acquire the ailing AMS. Levy has not confirmed the information.

As a book distributor, Levy Home Entertainment buys books from many publishers and distributes to retail stores. The new San Diego office will concentrate on developing Levy’s warehouse club business, made easier with AMS employees’ help.

In June 2006, Levy Home Entertainment (LHE), the company received $1.7 million incentive investment package from the State of Illinois to keep its operations in Illinois. LHE was headquartered in Melrose Park, Ill., but is in the process of moving to Will county and its sales and marketing operations to Chicago, as a result of rapid growth. The new distribution facility more than quadrupled LHE’s available space over the old facility. Levy also has distribution centers in Salem, VA, Hillside, IL and Clearfield, UT, and employs more than 300 employees in Illinois.

In a court hearing January 31, AMS reported to the court that it now has three, not two, offers to buy the company, and it is seeking to close what is a considered to be a “stalking horse” deal with one of these. The names of the companies were not released. A “stalking horse” deal can be defined as a sham candidate put forward to conceal the candidacy of another or to divide the opposition.

AMS basically asked the U.S. Bankruptcy Court in Delaware to approve a process by which the company’s sale will be open to other bidders, and potentially lead to an auction. Another court hearing must first be held before others can bid.

The Court has another hearing set for February 12 when AMS seeks final approval to a $75 million debtor-in-possession credit facility for AMS’s primary lender Wells Fargo Foothill, a move also strongly opposed by the Unsecured Creditors’ Committee because, they say, it favors Foothill.

On that same date, the Court will also decide whether Perseus Books Group will be assigned the assets of PGW, AMS’s distribution arm. Perseus must have 65% of the pre-petition claims agree to hand over their contracts from PGW to Perseus for 70 cents on the dollar. If Perseus meets the threshold and there are no further objectionswhich seems likely–the deal will be approved by the Court on February 12.

The bankruptcy case has huge implications for the publishing industry since more than 40 large publishers and potentially thousands of smaller ones are affected by AMS’s insolvency.