Post by Segaman on Apr 18, 2005 20:48:59 GMT -5
Video game retailer GameStop Corp. on Monday said it would buy competitor Electronics Boutique Holdings Corp. for $1.44 billion in cash and stock, creating a company that would rival Wal-Mart in game sales.
Shares in Electronics Boutique jumped 34 percent, making it the top net gainer on Nasdaq, while GameStop rose 10 percent and was among the top percentage gainers on the New York Stock Exchange.
The combined entity would have more than 3,200 stores in the United States and 600 stores abroad, with annual revenues approaching $4 billion and a dominant position in the growing market for used games.
"The new, larger company should have a significantly stronger position in the video game retail market place, especially as the new console hardware systems launch later this year," Harris Nesbitt analyst Edward Williams said in a note.
The video game industry is preparing for a rocky transition as it moves from one generation of game console to a newer, more advanced model. That changeover is expected over the next 18 months, and such changes have historically led to fluctuating sales.
Michael Pachter, an analyst with Wedbush Morgan Securities, called the acquisition a "nice deal" that would probably be approved by the U.S. Federal Trade Commission. The agency will review antitrust implications of the transaction, which the companies hope to close before Labor Day.
Pachter suggested the combined company would have a market share of about 25 percent, while Banc of America Securities analyst Gary Cooper pegged the combined share at about 21 percent to 22 percent, roughly equal to Wal-Mart Stores Inc. in terms of game sales.
TOO EARLY FOR SYNERGIES
On a conference call with analysts, executives of the two companies said it was too early to discuss future operating efficiencies. But they forecast their combined capital spending would drop 20 percent to 25 percent, compared with individual plans for this fiscal year.
They also said some stores would be closed, and the total number of store openings would likely decline from existing plans, but added they would still open more stores than they would close.
Shareholders of Electronics Boutique will receive $38.15 in cash and 0.78795 shares of GameStop Class A common stock for each Electronics Boutique share, the companies said.
The jump in the stocks cut the premium Electronics Boutique shareholders will receive to just under 3 percent as of Monday's close from the 34 percent premium the companies announced, which was based on Friday's closing prices.
Based on the share count of about 26.16 million Electronic Boutique shares GameStop said it used, the deal was worth $1.49 billion at Monday's close.
GameStop expects the deal to add significantly to its diluted earnings per share in the second half of the current fiscal year and in the next year. It expects "meaningful" pretax savings, beginning in the next fiscal year.
GameStop said its Chairman and Chief Executive Richard Fontaine and Chief Operating Officer Daniel DeMatteo would keep those jobs at the combined company. GameStop executives said there would be no significant branding changes this year.
Shareholders representing about 47 percent of Electronics Boutique's voting shares have pledged support for the deal, GameStop said. The deal carries a break-up fee of $40 million, EB said in a filing with securities regulators.
COMBINED STRENGTH
Both Electronics Boutique and GameStop suffered last holiday season because of shortages of console hardware. The situation has eased somewhat for Sony Corp.'s market-leading PlayStation 2, but is seen continuing for the Xbox video game console. Microsoft Corp. is widely expected to release an Xbox successor later this year.
Analysts said the combination of Electronics Boutique and GameStop could counteract some of the uncertainty of the next-generation launches.
"Looking further out into the next generation of consoles, having a unified, solid video game specialty retailer could benefit the video game software publishers simply because they will be able to tailor to the early adopter, hard-core crowd," American Technology Research analyst P.J. McNealy said in a note.
Shares in Electronics Boutique jumped $14.09 to $55.21, and shares of GameStop ended up $2.10 at $23.71.
Shares in Electronics Boutique jumped 34 percent, making it the top net gainer on Nasdaq, while GameStop rose 10 percent and was among the top percentage gainers on the New York Stock Exchange.
The combined entity would have more than 3,200 stores in the United States and 600 stores abroad, with annual revenues approaching $4 billion and a dominant position in the growing market for used games.
"The new, larger company should have a significantly stronger position in the video game retail market place, especially as the new console hardware systems launch later this year," Harris Nesbitt analyst Edward Williams said in a note.
The video game industry is preparing for a rocky transition as it moves from one generation of game console to a newer, more advanced model. That changeover is expected over the next 18 months, and such changes have historically led to fluctuating sales.
Michael Pachter, an analyst with Wedbush Morgan Securities, called the acquisition a "nice deal" that would probably be approved by the U.S. Federal Trade Commission. The agency will review antitrust implications of the transaction, which the companies hope to close before Labor Day.
Pachter suggested the combined company would have a market share of about 25 percent, while Banc of America Securities analyst Gary Cooper pegged the combined share at about 21 percent to 22 percent, roughly equal to Wal-Mart Stores Inc. in terms of game sales.
TOO EARLY FOR SYNERGIES
On a conference call with analysts, executives of the two companies said it was too early to discuss future operating efficiencies. But they forecast their combined capital spending would drop 20 percent to 25 percent, compared with individual plans for this fiscal year.
They also said some stores would be closed, and the total number of store openings would likely decline from existing plans, but added they would still open more stores than they would close.
Shareholders of Electronics Boutique will receive $38.15 in cash and 0.78795 shares of GameStop Class A common stock for each Electronics Boutique share, the companies said.
The jump in the stocks cut the premium Electronics Boutique shareholders will receive to just under 3 percent as of Monday's close from the 34 percent premium the companies announced, which was based on Friday's closing prices.
Based on the share count of about 26.16 million Electronic Boutique shares GameStop said it used, the deal was worth $1.49 billion at Monday's close.
GameStop expects the deal to add significantly to its diluted earnings per share in the second half of the current fiscal year and in the next year. It expects "meaningful" pretax savings, beginning in the next fiscal year.
GameStop said its Chairman and Chief Executive Richard Fontaine and Chief Operating Officer Daniel DeMatteo would keep those jobs at the combined company. GameStop executives said there would be no significant branding changes this year.
Shareholders representing about 47 percent of Electronics Boutique's voting shares have pledged support for the deal, GameStop said. The deal carries a break-up fee of $40 million, EB said in a filing with securities regulators.
COMBINED STRENGTH
Both Electronics Boutique and GameStop suffered last holiday season because of shortages of console hardware. The situation has eased somewhat for Sony Corp.'s market-leading PlayStation 2, but is seen continuing for the Xbox video game console. Microsoft Corp. is widely expected to release an Xbox successor later this year.
Analysts said the combination of Electronics Boutique and GameStop could counteract some of the uncertainty of the next-generation launches.
"Looking further out into the next generation of consoles, having a unified, solid video game specialty retailer could benefit the video game software publishers simply because they will be able to tailor to the early adopter, hard-core crowd," American Technology Research analyst P.J. McNealy said in a note.
Shares in Electronics Boutique jumped $14.09 to $55.21, and shares of GameStop ended up $2.10 at $23.71.
