MS Retailer August 15, 2007 - Vol.24 No.8 - Music & Sound Retailer

latestMAP Pricing is OK, Says Supreme CourtIn a decision that may beconsidered a victory for the MIregarding the FTC, The U.S.Supreme Court voted 5 to 4 onJune 28 to allow “price fixing” bymanufacturers. The ruling in thecase of Leegin Creative LeatherProducts v. PSKS overturns the1911 “Dr. Miles rule,” whichhad made price fixing illegal.The Supreme Court referredto MAP pricing or what somecall price fixing, as resale pricemaintenance. The ruling wasdelivered by Justice Anthony M.Kennedy, who said: “Resale pricemaintenance can interbrandcompetition by encouragingretail services that would not beprovided even with absent-freetrading…Offering the retailer aguaranteed margin and threateningtermination if it does not liveup to expectations may be themost effective way to expand themanufacturer’s market share byinducing the retailers and allowingit to use it’s own expertiseand experience in providing valuableservices.”The Supreme Court also saidthe Dr. Miles rule was outdatedand since manufacturers competewith other brands, competitionshould not suffer.The victory for Leegin concernedlawyers for the ConsumerUnion, who said the ruling canresult in higher prices for manyproducts. The four dissenting justicesagreed with PSKS and theConsumer Union. One of the dissenterswas Justice Stephen Breyer.“The only safe predictions tomake about today’s decision arethat it will likely raise the price ofgoods at retail and it will createconsiderable legal turbulenceas lower courts seek to developworkable principles. I do not believethe majority has shown newor changed conditions sufficientto warrant overruling a decisionof such long standing.”For a complete background ofLeegin Creative Leather Productsv. PSKS, see the May issue of theMusic & Sound Retailer.GC Goes PrivateThe long-rumored GuitarCenter news has happened. BainCapital Partners LLC snappedup the retailer for $2.1 billion,including debt, in a leveragedbuyout transaction. Bain will payGC shareholders $63 a share,a 26 percent premium over itsJune 26 closing price of $50.06.“We believe this transactiondelivers outstanding value forour stockholders, and is a strongvalidation of the company’s accomplishmentsover the yearsas well as our future growthprospects,” said Marty Albertson,chairman and CEO of GuitarCenter. “Following a comprehensivereview process, our board ofdirectors concluded this transactionis in the best interests of ourcompany and our stockholdersand it has the full support of themanagement team. Bain Capitalhas a successful track record andsignificant investment experiencein the retail industry and we lookforward to partnering with themgoing forward. We are committedto maintaining our vendorrelationships and ensuringour customers will continue toexperience the same quality andselection of musical instrumentproducts as well as the high levelof service and professional advicethrough our stores and ourTrim: 12.625"Bleed: 12.875"Web sites.”“As the leading retailer ofmusical instruments in the U.S.,Guitar Center enjoys great brandrecognition among musicians nationwide,a loyal customer base,and a track record of significantgrowth,” said Jordan Hitch, aManaging Director at Bain Capital.“We look forward to workingwith the company’s experiencedand capable management teamto continue to build the business.”However, on July 10, GCshareholders filed a class-actionlawsuit against the company witha goal of receiving a better offerfor their shares. GC shareholdersare being represented by thelaw offices of Brian M. Felgoise,P.C. in Jenkintown, Pa.Assuming the deal goesthrough, it includes a payoutof $1.9 billion in cash, with therest being assumption of debt.The deal is expected to close inthe fourth quarter. The Music &Sound Retailer reported a monthago that GC hired an advisor tohelp faciliate a sale. That advisorturned out to be Goldman Sachs.We originally mentioned the possibilityof Guitar Center goingprivate in a January story named“What’s the Future of GuitarCenter?”Smith a Top EntrepreneurPaul Reed Smith was named the 2007 Ernst & Young Entrepreneur ofthe Year for Maryland in the Retail and Consumer Products Category.Smith was selected by an independent panel of judges, and the awardrecognizes “outstanding entrepreneurs who are building and leading dynamic,growing businesses.” Smith was honored in Baltimore on June 28.Music & Sound Retailer