07/01/96 ALLIANCE: MAKING MICROSOFT MUSIC?

ALLIANCE: MAKING MICROSOFT MUSIC?

Shares of Alliance Entertainment (CDS) have yet to recover from the knockout blow Metromedia International dealt on Apr. 29, when it withdrew its $685 million buyout bid for the largest independent U.S. wholesale supplier of recorded music. Shares of Alliance traded as high as 10 in early February--right after Metromedia announced the buyout pact. When it was called off, Alliance fell from 9 to 6. Now at 5, the stock is again a target, say some pros who insist a new suitor is ``in the wings, now that the stock is flat on its back.''
Says a New York money manager who is accumulating shares: ``Joe Bianco [Alliance's chairman and CEO], who owns some 20% of the stock, is definitely looking for a buyer.'' He notes that, with Bianco having undergone preventive heart surgery in late April and with the music business finally staging a comeback, ``it isn't hard to deduce that Alliance is for sale.''
Bianco declined to comment on talk about another suitor. He also declined comment on rumors that Microsoft and Alliance have struck a deal in which Alliance will be the supplier of pre-recorded music for Microsoft's new virtual music store on the Internet. When Microsoft customers place an order, their selections will be delivered overnight. Whispers are the Microsoft- Alliance pact will be announced very soon. Alliance has 175,000 music titles in its warehouses. One investor expects sales from the Microsoft deal to hit $200 million in a year. Microsoft declined comment.
Analyst Craig Bibb of PaineWebber notes that Alliance is trading at 9 times cash flow, compared with 11 for its peers. He sees the stock price hitting 9 in a year.

BY GENE G. MARCIAL