There were still more questions than answers last week as publishers of all sizes grappled with different problems resulting from Advanced Marketing Services' surprise bankruptcy filing at the end of December (Foreword, Jan.1). The biggest question of all, however, concerns the future of AMS itself.
In different documents filed with the bankruptcy court, AMS acknowledged that it has been in discussions with a number of potential investors for the past 18 months. While it is in Chapter 11, AMS said it will continue to seek new sources of financing as well as look for companies that might be interested in acquiring AMS or some of its assets. One source said that a new financing deal was nearly in place late last month, but the potential investor became concerned with the continuing FBI and SEC investigations into AMS advertising accounting practices. No new indictments have been handed down in either probe in more than a year, although both investigations are still classified as "ongoing."
Many industry observers have speculated that if a buyer cannot be lined up for the entire company, PGW and AMS's core distribution business may be split up. AMS acquired PGW almost exactly five years ago for $37.3 million. PGW was having one of its best years since the AMS acquisition, but the bankruptcy has caused a number of its clients to considering leaving the company. "You'd be crazy not to consider your options," one publisher said. The bankruptcy has deprived clients of not only much-needed cash, but has raised questions about access to inventory.
If PGW is sold, that would leave AMS with its core business of supplying books to warehouse clubs, the company's primary mission when it was founded in 1982. At the time of the filing it was serving 1,078 membership warehouse locations. AMS's growth has been tied to the increase in book sales at the clubs, but even that business has been under attack by competitors, and the company has lost some accounts to Anderson Merchandisers and Ingram. Publishers have mixed feelings about continuing to deal with AMS. Several of the largest publishers feel betrayed by AMS—just days before the Chapter 11 filing, AMS had assured the major New York houses that everything was fine. But at present there are not many viable alternatives to AMS unless another company ramps up its distribution business to the clubs—Anderson, Ingram and Levy were all mentioned by publishers as possible options.
AMS's bankruptcy has its roots in the dual SEC and FBI investigations of the company's advertising accounting practices, which inflated the company's earnings in fiscal 2001—2003 by manipulating AMS's advertising and co-op programs. Three people were indicted by the Justice Department and pleaded guilty. On December 10, Sandra Miller Christie, former v-p of advertising, was sentenced to 36 months in prison for her role in the scheme. Marcy Wilson Roke, former director of advertising for creative services, is serving a 12-month sentence in a halfway house, and Karyn Ann Larko, former director of customer accounts, received five years' probation last May. Christie and Roke also were indicted by the SEC on civil charges.
The advertising scheme led to an internal review of AMS's financial statements and although the company has been working on those restatements for almost three years, no revisions have been filed.
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