The bankruptcy proceedings of Diamond Comic Distributors, once the largest distributor of comic books in the world, have taken a dramatic turn as Alliance Entertainment (AENT) has filed a lawsuit against Diamond and related entities. The suit follows Diamond’s controversial decision to sell its assets to the joint back-up bidder, Universal Distribution and Ad Populum, despite AENT being declared the winning bidder at auction with a significantly higher offer.
Diamond filed for Chapter 11 bankruptcy in January, initiating a 13-week process to reorganize its debts under the guidance of financial firm Raymond James. The company auctioned off its assets, which include Diamond Comic Distribution, Alliance Gaming Distribution, Diamond Select Toys, CGA, and Diamond UK. AENT emerged as the top bidder with an offer of $72.25 million. Universal Distribution and Ad Populum submitted a joint back-up bid of $69.13 million but were initially outbid by AENT.
However, over the weekend, Diamond shockingly announced its intent to finalize the sale with Universal and Ad Populum instead of AENT. This decision came despite AENT later increasing its total bid to $85.37 million after post-auction negotiations—$14.4 million higher than its initial offer and well above Universal/Ad Populum’s bid.
Allegations of Bad Faith and Favoritism
In its lawsuit, AENT accuses Diamond of acting in bad faith throughout the auction process. According to court filings, AENT alleges that Diamond manipulated the auction to favor Universal/Ad Populum by allowing them to bid as a group, effectively increasing their financial leverage. The complaint also claims that Diamond made additional economic demands on AENT after the auction that were not part of the original bidding terms and later ceased communications with AENT altogether.
AENT’s legal filing describes Diamond’s actions as a violation of the court-approved bidding procedures. “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,” the complaint states. AENT is seeking a preliminary injunction with a temporary restraining order to block Diamond from selling its assets to any party other than AENT.
Changing Course Amid Controversy
Diamond justifies its decision by asserting that it had determined—after consulting with investment bankers Raymond James, unsecured creditors, and other professionals—that Universal/Ad Populum’s back-up bid was superior due to changes made after the auction. The exact financial terms of this revised back-up bid still remain unclear, as it reportedly relies on formula-based calculations tied to Diamond’s financials rather than any fixed dollar amount.
AENT disputes this claim, arguing that its final offer remains the highest and best bid for Diamond’s assets. The company further alleges that Diamond engaged in secret negotiations with Universal/Ad Populum after declaring AENT as the winning bidder, undermining transparency and fairness in the process.
Court Battle Looms
The legal dispute is set to play out in U.S. Bankruptcy Court in Maryland before Judge David E. Rice. Witnesses expected to testify include representatives from Raymond James and both bidding parties. Key evidence includes email communications between Diamond’s legal counsel and AENT, auction transcripts, and declarations from key stakeholders.
This latest twist has left industry observers stunned. With AENT ready to close on April 10 at its higher bid price—and accusing Diamond of prioritizing its preferred buyer over maximizing creditor recovery—the court’s decision could have significant implications for how bankruptcy auctions are conducted in the future.
For now, all eyes were on Judge Rice’s courtroom today as this high-stakes battle unfolds over one of comics’ most storied companies. We’ll know more this week as the story unfolds.
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