04.04.2005 13:16
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Source Interlink Companies Signs Letter of Intent To Acquire Chas. Lev

Source Interlink Companies Signs Letter of Intent To Acquire Chas. Levy Circulating Co.


    Business Editors

    BONITA SPRINGS, Fla.--(BUSINESS WIRE)--April 4, 2005--

Company to Expand U.S. Presence in the $4.5 Billion Single-Copy Magazine Distribution Industry

    Source Interlink Companies, Inc. (Nasdaq: SORC), a premier provider of home entertainment products and marketing services, today announced it has signed a letter of intent to acquire Chicago-based Chas. Levy Circulating Co., one of the principal magazine wholesalers in the United Sates. The acquisition, scheduled to close by May 1, 2005, is subject to due diligence and approval by the Board of Directors of both companies.
    Founded in 1893, Chas. Levy Circulating Co. distributes magazine periodicals from all leading publishers to more than 9,000 stores operated by leading retail chains throughout the Midwest, East, and West coasts. Major chains include Wal-Mart, Albertsons, CVS, Target, Meijers, Walgreens, Kmart, Safeway, Kroger, Host, Hudson Retail Group, and Rite Aid. In 2004, Chas. Levy Circulating Co. reported revenue of approximately $370 million. Source Interlink currently provides direct-to-retail magazine distribution services for approximately 10,000 stores in both the specialty and mainstream retail market. Specialty market chains include Barnes & Noble, Borders, Musicland, and Tower Records. In total, the combined company will provide magazine distribution services to approximately 20,000 stores. For the most recently completed audit period, the combined company would have had revenues for all product lines of approximately $1.7 billion.
    Under the agreement, Source Interlink is to acquire all of Chas. Levy's magazine distribution business, including a 2,500 person in-store merchandising sales force, by purchasing all of the equity interests of Chas. Levy's magazine company, Chas. Levy Circulating Co. LLC, for approximately $30 million (subject to certain adjustments). Carol Kloster, President and Chief Executive Officer of Chas. Levy, will join Source Interlink as an Executive Vice President and assume responsibility for all magazine operations at Source Interlink. The Chas. Levy Circulating Co. will continue to maintain offices in the Chicago area.
    Source Interlink intends to sign a separate 10-year marketing and service agreement with Levy Home Entertainment, LLC, a Chas. Levy company not included in the transaction. Levy Home Entertainment is a leading full line book distributor. The 10-year marketing agreement provides Source Interlink the opportunity to penetrate the book distribution business and strengthen its portfolio of marketing, merchandising and fulfillment for its product and service categories without making the significant capital investment that would have otherwise been required.
    Leslie Flegel, chairman and chief executive officer of Source Interlink, said, "It is an honor to sign this letter of intent to acquire Chas. Levy Circulating Co., one of the oldest and most respected magazine wholesalers in the history of magazine single copy sales. This acquisition, combined with our recent merger with Alliance Entertainment, significantly strengthens our position as a full-service provider of home entertainment content products for the retail industry. We required a greater critical mass and a broader base in magazine distribution in the mainstream market, an expanded merchandising team in the field to service all of our products, and a strong book distribution capability. This transaction accomplishes all of the above.
    "Our 2004 acquisition of Empire News, in Buffalo, NY provided Source Interlink the opportunity to apply our distribution model in a traditional market with a very typical variety of class of trade retailers. The subsequent market and financial success of the Empire conversion created an effective and profitable operating platform we believe to be applicable to similar market conditions. Chas Levy Circulating Co. has the business makeup we feel is most conducive for the type of conversion that took place at Empire.
    Flegel added, "Our management cultures and business philosophies were strong reasons for both companies to feel comfortable with the transaction. In fact, Levy chose Source Interlink over several suitors. Our plan is to adopt our proven business model to Levy's existing business and use the acquired 2,500 in-store merchandising sales force on behalf of all the entertainment products we distribute, including DVDs, music CDs and books. We believe the addition of Carol and the rest of her experienced staff will significantly strengthen our marketing capabilities and overall management team."
    Barbara Levy Kipper, Chairman and principal owner of the Chas. Levy Company, commented, "I was brought up to believe that for a company to succeed it has to continue to grow. I am excited about the opportunity this affords the magazine company and its employees along with the opportunities for Levy Home Entertainment."
    Carol Kloster, President and CEO of Chas. Levy Circulating Co., stated "I look forward to being part of this combined entity. The resources of Source Interlink along with Levy's expertise in the mainstream should allow us to provide improved and expanded services to our retailers."
    Source Interlink will discuss the transaction and its financial implications in greater detail on its earnings conference call scheduled for April 18, 2005.

    About Source Interlink

    Source Interlink Companies is a premier marketing, merchandising and fulfillment company of entertainment products including DVDs, music CDs, magazines, books and related items. The Company's fully integrated businesses include:

-- Distribution and Fulfillment of entertainment products to major retail chains throughout North America and direct-to-consumers via the Internet

-- Import and Export of periodicals sold in more than 60 countries worldwide

-- Coordination of product selection and placement for impulse items sold at checkout counters

-- Processing and collection of rebate claims as well as management of sales data obtained at the point-of-purchase

-- Design, manufacture and installation of wire fixtures and custom wood displays in major retail chains

    With more than $1.3 billion in annual revenue, Source Interlink serves approximately 110,000 retail store locations throughout North America. Supply chain relationships include movie studios, record labels, magazine and newspaper publishers, confectionary companies and manufacturers of general merchandise. For more information, please visit the Company's website at www.sourceinterlink.com.

    This press release contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995, including statements relating to, among other things, future business plans, strategies and financial position, working capital and capital expenditure needs, growth opportunities, and any statements of belief and any statements of assumptions underlying any of the foregoing.

    These forward-looking statements reflect Source Interlink's current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause future events, achievements or results to differ materially from those expressed by the forward-looking statements. Factors that could cause actual results to differ include: (i) the challenges and costs of integration and restructuring, and the ability to achieve anticipated synergies associated with the proposed acquisition of Chas. Levy Circulating Co.; (ii) an evolving market for single-copy magazines, (iii) the ability to obtain product in sufficient quantities; (iv) adverse changes in general economic or market conditions; (v) the ability to attract and retain employees; (vi) intense competition in the marketplace and (vii) other events and other important factors disclosed previously and from time to time in Source Interlink's filings with the Securities and Exchange Commission, including Source Interlink's annual report on Form 10-K for the fiscal year ended January 31, 2004 and Source Interlink's registration statement on Form S-4/A filed with the Securities and Exchange Commission on January 18, 2005.

    Source Interlink does not intend to, and disclaims any duty or obligation to, update or revise any forward-looking statements or industry information set forth in this press release to reflect new information, future events or otherwise.

--30--ML/ny*

CONTACT: KCSA Public Relations Worldwide Todd Fromer/Michael Cimini 212-896-1215/212-896-1233 tfromer@kcsa.com/mcimini@kcsa.com

KEYWORD: FLORIDA INDUSTRY KEYWORD: PUBLISHING SUPERMARKETS RETAIL PRODUCT MERGERS/ACQ SOURCE: Source Interlink Companies, Inc.

Copyright Business Wire 2005

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