Tweeter Drops Monster Cable

Here's one you don't see every day: competing press releases over a store dropping a product line—or vice versa.

First, Tweeter Home Entertainment Group, Inc. announced that it was dropping Monster Cable products and was replacing them with four new vendors offering greater "quality, value, profitability, margin, and customer satisfaction."

Not true, said Monster in a June 26 press release. According to it, "In recent months Monster had become increasingly concerned over Tweeter's financial condition, and the exposure of its four million dollar credit line. After doing an in-depth study of Tweeter financials, talks with other Tweeter vendors, gathering the opinion of financial analysts and other industry advisors, Monster's credit committee became increasingly concerned about continued losses in the future and high risk of loss." As a result, the cable company claimed, it rolled back the chain's credit "to commensurate levels and recommended a shortening of terms that would still allow Tweeter's Monster business to continue." According to several well-placed industry insiders, those terms were COD.

Tweeter's response was to drop the line.

Monster's CEO Noel Lee said, "This is a sad end to a long relationship. ... It was a true partnership between our two companies. ... The abrupt end to the partnership and the reluctance to work things out before dropping Monster came to us as a complete shock."

This wasn't Tweeter's first surprising press release of the summer. In August, Mark Wattles, CEO and prinicipal shareholder of Ultimate Electronics, raised the hackles of Tweeter's board of directors when he increased his stake in the company to slightly over 12%. This alarmed the board, but what really ticked it off was when Wattles wrote the board, "While some may consider your stock undervalued, it is my opinion that if everything doesn't go according to management's near-term plan, the stock will be worth much less." Wattles suggested that, under the right circumstances, he might be willing to pony up quite a bit of cash for the company.

Tweeter's CEO Joe McGuire issued a press release calling Wattles' comments "highly inappropriate," given his control of Ultimate Electronics and the possibility that his stock purchase might indicate a desire for a hostile takeover of a competing chain. The two chains don't operate in the same regions of the US, however.

According to reports in The Boston Globe, the battle of words escalated even further when Wattles called for a vote to discard Tweeter's policy of staggered board member elections—a move that would make it possible to overturn the whole board in one fell swoop.

McGuire responded that Wattles' suggestions "did not have standing" to change the 2006 proxy, which is corporate-speak for "no way."

Tweeter did not make a profit in any of the last three fiscal years, and its stock is valued at 10% of its all-time high. Many industry observers—including Monster Cable, obviously—agree with Wattles' assessment that the chain is flailing to maintain its financial footing. The upcoming holiday sales season may well be the make-or-break point.

Stay tuned.

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