Posted in: Comics, Current News | Tagged: AENT, diamond

AENT Is Now Suing Diamond Comic Distributors Over Bankruptcy Auction

Alliance Entertainment, or AENT, is now suing Diamond Comic Distributors over the bankruptcy auction... and what happened afterwards.

In January, Diamond Comic Distributors, the biggest distributor of comic books to comic stores in the world, declared Chapter 11 bankruptcy. This enabled it to keep operating while it tried to find a more permanent solution to its debts. But as the court hearing approaches in a matter of hours, things have suddenly got a lot messier. This is what we know, from the top, with links.

• On the announcement of Chapter 11, Diamond started a 13-week bankruptcy process run by financial firm Raymond James, got finance to operate, and announced an auction for its assets.
• Those assets included Diamond Comic Distribution, Alliance Gaming Distribution, Diamond Select Toys, CGA and Diamond UK
• Universal Distribution was named the Stalking Horse bidder for Alliance Games and Diamond UK, which required a purchase commitment of thirty-nine million dollars but with certain discounts and privileges for taking that position.
• The auction took place, and Alliance Entertainment, or AENT, was named the top bidder for the assets of $72,245,000, though not for Diamond UK. This was widely announced, including by Diamond themselves.
• Then we learned that a joint bid by Universal Distribution and Ad Populum came second and was named the back-up bid, with a bid of $69,130,000. With Universal getting Alliance and Diamond UK, and Ad Populum getting Diamond Comics, Diamond Select Toys and everything else.
• Today's court hearing with the Honorable Judge Rice in Courtroom 9-D at the United States Bankruptcy Court for the District of Maryland at 10 am was intended to ensure the legality of the bid and the process.
• But instead over the weekend, the debtors declared that they had close the back-up bid from Universal and Ad Populum instead of AENT, despite AENT having bid more. No reason was given.

But it does mean that this court hearing is going to be far more of a fight. Witnesses called include the following:

• Robert Gorin Debtors' Co-Chief Restructuring Officer
• Alec Haesler Director at Raymond James & Associates, Inc., Investment Banker for the Debtors
• Geoffrey Richards Senior Managing Director at Raymond James & Associates, Inc., Investment Banker for the Debtors
• Bruce Ogilvie Chairman, Alliance Entertainment, LLC
• Paul Navid Partner at Province, LLC, Investment Banker for Alliance Entertainment, LLC

While the exhibits being offered are thus:

• Declaration of Alec Haesler in Support of Debtors' Sale Motion
• Declaration of Robert Gorin in Support of Debtors' Sale Motion
• Asset Purchase Agreement with Universal Distribution LLC, dated January 13, 2025
• Auction Transcripts
• Alliance Entertainment Executed NDA, dated October 18, 2024
• April 2, 2025 Hearing Transcript
• Alliance Entertainment APA Draft, dated March 23, 2025
• March 26, 2025 (5:55 p.m.) email from William L. Wilkins, Esq. to Jeffrey C. Hampton, Esq. with draft Alliance Entertainment Asset Purchase Agreement
• March 27, 2025 (5:28 p.m.) email from Jeffrey C. Hampton, Esq. to Jason Teele, Esquire with draft Alliance Entertainment Asset Purchase Agreement
• March 27, 2025 (9:15 p.m.) email from William L. Wilkins, Esq. to Jeffrey C. Hampton, Esq. with draft Alliance Entertainment Asset Purchase Agreement
• March 28, 2025 (12:40 p.m.) email from William L. Wilkins, Esq. to Jeffrey C. Hampton, Esq. with draft Alliance Entertainment Asset Purchase Agreement
• Draft Alliance Entertainment Asset Purchase Agreement, dated March 31, 2025
• April 1, 2025 (3:53 p.m.) email from Jeffrey C. Hampton, Esq. to William L. Wilkens, Esq.
• April 1, 2025 (5:08 p.m.) email from William L. Wilkins, Esq. to Jeffrey C. Hampton, Esq. with draft Asset Purchase Agreement with Alliance Entertainment, LLC
• April 1, 2025 (8:17 p.m.) email from Jeffrey C. Hampton, Esq. to William L. Wilkens, Esq.
• March 27, 2025 (11:08 p.m.) email from Hunter Thompson to Geoffrey Richards, Alec Haesler and Isabella Zeng
• March 26, 2025 (8:53 p.m.) email from Jeffrey C. Hampton, Esq. to Jason Teele, Esq.
• Asset Purchase Agreement with Universal Distribution LLC, dated January 13, 2025, and First Amendment to Asset Purchase Agreement
• Asset Purchase Agreement with Sparkle Pop, LLC (Ad Populum)
• Raymond James Demonstratives

Alliance Entertainment or AENT is now suing Diamond Comic Distributors

These pieces of evidence were all labelled D1-D20, which looked like a very dull role-playing game outcome sheet. But then, AENT filed more adversarial paperwork. And this is where it gets really interesting. Because now AENT is suing Diamond Comic Distributors.

They state that "this action arises from Debtors' inexplicable refusal to seek this Court's approval of, and to consummate, the sale of their assets to the successful bidder at an auction they conducted. And claim that the debtors "violated the Bid Procedures Order, conducted the Auction in a manner that was unfair to any party other than their preferred purchaser, and—despite having designated AENT as the Successful Bidder—acted with extreme bad faith in the period following the Auction. Debtors' bad faith is illustrated by their: (i) demand that AENT include new economic terms in its winning bid that were not included in AENT's bid and not addressed at the Auction; (ii) refusal to engage in any negotiations over the terms of AENT's asset purchase agreement (the "AENT APA"); and (iii) tersely advising AENT that they intend to seek Court approval of the Backup Bidders' inferior bid."

AENT states that "the purpose of the Auction was to identify the highest and best bid for Debtors' assets. Debtors, however, never feeling bound by the Bid Procedures Order, used the Auction to steer the sale of their assets to the Stalking Horse Purchaser. In pursuit of their illicit goal, Debtors concealed material information from bidders (other than the Stalking Horse Purchaser) at the Auction and changed the rules of the Auction after it began in order to ensure that the Stalking Horse Purchaser emerged as the party with the highest and best offer. Their efforts failed miserably when the Stalking Horse Purchaser—who, at the start of the Auction, was secretly teamed up with another bidder, Ad Populum LLC ("Ad Populum"), to increase the Stalking Horse Purchaser's financial clout—affirmatively dropped out of the bidding, leaving AENT's offer as the highest and best bid. Having failed in their attempt to influence the outcome, Debtors were constrained to declare AENT the Successful Bidder at the conclusion of the Auction. Indeed, even after Debtors declared AENT the Successful Bidder, Debtors spoke to Universal off the record before finally announcing what was obvious to all in attendance, that AENT was the winner of the Auction."

Basic Fun! bid fifty million for Diamond

We also learn some of the other bidders. Basic Fun!, the owners of Care Bears, Tonka, Lite Brite, K'nex, Lincoln Logs, Tinker Toys, Playhut, Uncle Milton, Fisher Price Classics, Mash'ems and Littlest Pet Shop had submitted a fifty million dollar bid for the whole business. AENT states that "after the Auction began, but before bidding commenced, Debtors announced, to the shock of AENT, that they had arranged for Universal and Ad Populum to bid as a group. Ad Populum was interested in purchasing only certain assets of Debtors, and allowing the two bidders to collude with one another increased their financial wherewithal to outbid AENT and Basic Fun! Debtors believed this would further their goal of steering the sale to Universal, their preferred purchaser, without regard to the interests of the estates or creditors."

AENT, however, bid $72,245,000. "Angelo Exarhakos, on behalf of Universal/Ad Populum group, then stated, "We're out," indicating they would not counter with another bid. At this point, the Debtors stopped the Auction and met privately with Universal. The details of that discussions were never disclosed. Upon resuming the Auction, Raymond James proceeded to declare AENT was the successful bidder and Universal/Ad Populum as the back-up bidder.

But AENT states that "Closing the Auction did not stop Debtors from soliciting new bids. In the days following the Auction, Debtors negotiated in secret with Universal/Ad Populum." And it seems that the declaration of Robert Gorin in the evidence above will be part of this case and that "Debtors never engaged in "good faith" or "arm's length" negotiations with AENT."

AENT claim that they followed up seeking assurances and amendments to the deal verbally made during the auction process, and there was a bit of back and forth. "At this point, Debtors ceased all communications with AENT and refused to respond to the last version of the agreement transmitted by AENT's counsel. Additionally, AENT arranged for their accountants to meet with Raymond James on March 27, 2025 to discuss the possibility of creating audited financials since Debtors had stopped preparing such financials in or around 2023. Raymond James abruptly cancelled the meeting on the morning of March 27, without any explanation or attempt to reschedule."

AENT's total bid for Diamond was $85.37 million

They also state that "In fact, AENT increased the total value of its bid following the Auction in response to Debtors' demands. The total additional value of AENT's offer as a result of Debtors' demands exceeds $14,400,000 for a total consideration of approximately $85.37 million."

Four days later, they state that the "Debtors' counsel sent an email outlining five alleged inconsistencies between the March 28 version of the AENT APA and the agreement placed on the record at the Auction. In an email sent on March 31, 2025, at 1:35 p.m., AENT acquiesced to four of the five points raised by Debtors' counsel and explained that the fifth point was a significant new economic term that was not included in any bid made by AENT up to that point nor discussed at the Auction. In that same email, and in subsequent emails sent around the same time, AENT's counsel requested a telephone conference with Debtors' professionals to discuss their points. A call was held at 6:00 p.m. that evening, following which, at 8:54 p.m., AENT's counsel sent a further revised agreement adopting four of the five additional points requested by Debtors, but not incorporating Debtors' new economic ask."

The details of this disagreement are not clarified in the filed paperwork. "The next day, April 1, 2025, at 12:29 p.m., Debtors' counsel sent an email outlining seven additional revisions to the last version of the agreement. AENT agreed to each of the seven new points in the interest of finalizing the agreement so Court approval could be sought at the hearing, which had been adjourned to April 2, 2025. Debtors ignored this communication, and several follow-up communications requesting a response."

Then the game changed, "At 3:57 p.m. on April 1, 2025, Debtors' counsel notified AENT that Debtors would seek approval to sell substantially all assets to Universal/Ad Populum. The notice from Debtors' counsel abruptly stated, " . . . the Debtors, after consultation with the Consultation Parties, will be seeking approval of the sale at tomorrow's hearing to the backup bidders." Later that same day, Debtors filed with the Court Mr. Gorin's declaration in which he states "following the Auction, Debtors have continued to negotiate in good faith and at arm's-length with Alliance Entertainment and Universal/AP with respect to their respective transactions." For the first time, AENT learned that Debtors were
secretly soliciting additional offers from Universal/Ad Populum."

And on the 5th of April, the statement that Diamond Comic Distributors would be bought by Universal and Ad Populum was filed. AENT states "The transactions described in those agreements have a lesser value than that of the AENT APA and, notably, do not include the revisions the Debtors demanded of AENT following the Auction. At no time has AENT breached its promise to consummate the purchase of Debtors' assets. In fact, AENT increased the total value of its bid following the Auction in response to Debtors' demands. The total additional value of AENT's offer as a result of Debtors' demands exceeds $14,400,000. AENT stands ready, willing, and able to close the transaction on April 10, 2025."

AENT asking for a temporary restraining order on selling Diamond to Universal/Ad Populum

AENT is filing a motion for preliminary injunction with a temporary restraining order against the debtors selling Diamond to anyone else other than AENT. They state that the debtors "violated the Bid Procedures Order, conducted the Auction in a manner that was unfair to any party other than their preferred purchaser, and despite having designated AENT as the Successful Bidder—acted with extreme bad faith after the Auction, including making new economic demands that were never included in AENT's bid and not addressed at the Auction, refusal to engage in any negotiations over the terms of AENT's asset purchase agreement, and ultimately advising AENT that they intend to seek Court approval of the Backup Bidders' inferior bid.

The Court hearing will be held today at 10am. How this all affects things, we wait to see.

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