First, why did Alliance terminate? According to the asset purchase agreement for Alliance Entertainment to acquire the assets of Diamond Comic Distributors approved by the court on April 11, there were very limited grounds for termination of the agreement by the purchaser:
- If both purchaser and seller agree.
- By purchaser if closing has not occurred on or before April 25, or by a closing date extended by mutual agreement. The termination was filed on April 24.
- By purchaser if seller files to sell the assets to another purchaser, and then consummates that sale.
- If Chapter 11 is converted to a Chapter 7 bankruptcy.
- If the order approving the sale to the purchaser is "…not reasonably acceptable to Purchaser in any manner that is materially adverse to Purchaser."
- If the Seller breaches the terms of the agreement.
The relationship between Alliance Entertainment and Diamond had been strained by Diamond's attempt to change the winner of the auction, and Alliance's subsequent lawsuit, but it had appeared that the transaction was headed for closing. Presumably there will be a filing early this week that will explain which of those criteria were employed by Alliance to terminate the agreement.
We also took a look at what's known about the back-up bid, which presumably will now come into play. The combined offer contemplates splitting the Diamond Comic Distributors assets between two companies.
Canadian distributor Universal Distribution would acquire Alliance Game Distributors for $49,634,950, and acquire Diamond UK at a price based on the balance sheet of the company.
NECA and WizKids parent Ad Populum would acquire "the other assets of the Debtors sold at the Auction" for $19,495,050, without specifying what those assets were, according to an amendment to the proposed Universal Distribution Asset Purchase Agreement filed earlier this month.
The details of the Ad Populum purchase agreement are opaque at this point, because the agreement was not included in the motion to sell the assets to the joint bidders. No reason was given for the absence of the agreement from the filing.
The other assets for sale included the comic distribution business of Diamond Comic Distributors, Diamond Select Toys & Collectibles, and collectible Grading Authority. It seems likely to us that Ad Populum would have wanted Diamond Select as a good fit with NECA, and the price indicates that the comic distribution arm was likely also included.
Alliance Entertainment also introduced two elements of uncertainty regarding the Ad Populum bid in its lawsuit (see "Alliance Sues"), alleging that Ad Populum may not have sufficient financing to close the deal, and that Ad Populum might assign its portion of the deal to another company.
Moving to the back-up bidder also raises the odds that an acquisition does not close. Unlike the Alliance Entertainment purchase agreement, the Universal Distribution purchase agreement included a "material adverse change" clause, which allows the purchaser to walk away if there was a material adverse change "…with respect to the Business or the Acquired Assets (taken as a whole)."