GameStop to buy out Electronics Boutique (no joke!)

[Honolulu_Blue]

http://www.reuters.com/financeNewsArticle.jhtml?type=mergersNews&storyID=8212393&section=investing

UPDATE 2-GameStop to buy Electronics Boutique for $1.44 bln
Mon Apr 18, 2005 09:50 AM ET
(Adds details, analyst comment, stock prices, changes dateline from previous CHICAGO)


By Ben Berkowitz

LOS ANGELES, April 18 (Reuters) - GameStop Corp. (GME.N: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=GME.N&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=GME.N&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=GME.N)) on Monday said it would buy rival Electronics Boutique Holdings Corp. (ELBO.O: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=ELBO.O&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=ELBO.O&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=ELBO.O)) for $1.44 billion in cash and stock, likely creating the leading video game retailer in the United States.

Electronics Boutique stock jumped 29 percent, while GameStop shares fell 1.6 percent in early trading.

The combined entity would have more than 3,200 stores in the U.S. and 600 stores internationally, with annual revenues of nearly $4 billion and a dominant position in the growing market for used game sales.

"Nice deal, probably okay with the (Federal Trade Commission)," said Michael Pachter, an analyst with Wedbush Morgan Securities. "It would make them bigger than Wal-Mart," (WMT.N: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=WMT.N&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=WMT.N&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=WMT.N)) in terms of sales

The video game industry is preparing for a rocky transition as it moves from one generation of game console to a newer, more advanced generation of machine. That changeover is expected over the next 18 months, and such changes have historically led to fluctuating sales.

Analysts said the combined GameStop would be the biggest retailer of video games in the U.S, with a market share of about 25 percent. For the 2005 fiscal year, Electronics Boutique had annual sales of $1.98 billion, while GameStop sales totaled $1.84 billion.

Shareholders of Electronics Boutique would receive $38.15 in cash and the equivalent of 0.78795 shares of GameStop Class A common stock for each Electronics Boutique share, the companies said. That is a premium of 34.2 percent, based on Friday's closing prices for the stocks.

GameStop expects the deal to add significantly to its diluted earnings per share in the second half of fiscal year 2005 and in 2006. It expects "meaningful" pretax savings, beginning in fiscal year 2006.

GameStop said its Chairman and Chief Executive Richard Fontaine and Chief Operating Officer Daniel DeMatteo would keep those roles at the combined company.



Shareholders representing about 47 percent of Electronics Boutique's voting shares have already pledged support for the deal, GameStop said.



Both Electronics Boutique and GameStop suffered last holiday season because of console hardware shortages. The situation has eased somewhat for Sony Corp.'s (6758.T: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=6758.T&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=6758.T&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=6758.T)) (SNE.N: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=SNE.N&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=SNE.N&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=SNE.N)) market-leading PlayStation 2, but is seen continuing for the Xbox video game console. Microsoft Corp. (MSFT.O: Quote (http://www.investor.reuters.com/FullQuote.aspx?ticker=MSFT.O&target=%2fstocks%2fquickinfo%2ffullquote), Profile (http://www.investor.reuters.com/StockOverview.aspx?ticker=MSFT.O&target=%2fstocks%2fquickinfo%2fstockoverview), Research (http://www.investor.reuters.com/StockReports.aspx?ticker=MSFT.O)) is widely expected to release an Xbox successor later this year.

Electronics Boutique stock rose $12.03 to $53.15, while GameStop slipped 36 cents to $21.26. (With additional reporting by Sinead Carew in New York and Brad Dorfman in Chicago)

[rkmsuf]

I guess that's smart for both of them.

[Crapshoot]

That is a ridiculous premium to pay IMO- nice job for the EB CEO..

[Honolulu_Blue]

That is a ridiculous premium to pay IMO- nice job for the EB CEO..
Agreed. $1.44 billion does sound like a lot for the EB chain.

[SirFozzie]

I'm just waiting for EA to buy both of them.

[Crapshoot]

Agreed. $1.44 billion does sound like a lot for the EB chain.

Especially given that I wonder how long they can hold of the discounting of a Amazon or Walmart. Growth is certainly huge, and in the sense that it eliminates a competitor in the impluse buying category, I can see the merit- I just can't understand the price.

[rkmsuf]

EB did generate 2 billion in sales last year.

[General Mike]

I hate Gamestop.

[Draft Dodger]

I hate Gamestop.

I'm not very fond of either one

[Franklinnoble]

I'm just happy that they actually are in the process of putting an EB Games in Placerville.

(I live in a pretty podunk mountain town - this is a big deal for me).

I guess it's gonna be a GameStop now. Whatever. As long as I don't hafta drive all the way to Folsom any time I wanna buy a video game.

[digamma]

That is a ridiculous premium to pay IMO- nice job for the EB CEO..
Not really. It's a little more than 25% off of Friday's close and you have to discount that a bit because it is a part stock deal. 25% premiums aren't abnormal, particularly in deals where there may be more than one bidder (I don't know if that was the case here).

[SackAttack]

I'm wondering how the FTC is going to sign off on this one, given that they're the two largest specialty game chains in the country, and their primary direct competition are small game stores owned by Blockbuster and Hollywood Video.

I mean, this deal would either cause two locations in my town to close, or make it so we've got three GameStops. That seems excessive.

[WSUCougar]

"It would make them bigger than Wal-Mart," in terms of sales
WHAT?!? How is that possible...?

[Franklinnoble]

WHAT?!? How is that possible...?
I think they mean in terms of game sales.

Not too unlikely, I'd guess.

[rkmsuf]

WHAT?!? How is that possible...?

Video gamers buy without regard for price typically.

Look at the whole pre-order phenomenon. Nobody cares about the price on the whole...just get it here.

It's scary really. Look at the sales of EB and Gamespot. Huge for dinky little stores.

[Bee]

I'm wondering how the FTC is going to sign off on this one, given that they're the two largest specialty game chains in the country, and their primary direct competition are small game stores owned by Blockbuster and Hollywood Video.

I mean, this deal would either cause two locations in my town to close, or make it so we've got three GameStops. That seems excessive.

Wouldn't their competition be stores like Best Buy, Wal-Mart, etc? I'd think this would go through with no problem since there's still tons of competition for the video game market.

[Coder]

I absolutely despise EB... they bought _THE_ best videogames/boardgames/roleplaying games chain in norther Europe (Tradition), and in two years they've turned the entire chain of stores into EB-clones... every store looks exactly the same, the people in the store looks like they're cut from the exact same template with their silly uncharacteristic ties and shirts, the titles they carry are only the top-sellers and they're gradually thinning down their roleplaying games and boardgames..

Not only that, their prices have been jacked up to being at least €10 more than the Best-Buy like stores around Sweden.. Before EB came to Scandinavia, you could walk into the BB-clones and laugh at their prices, then bring your business to Tradition.. now it's the opposite... no wonder EB has to cut staff in their stores so that only 2-3 people work in their flagship stores during primetime, where Tradition used to have at least 5.

is it time for a /rant off yet?

Nah..

EB feels like they've squeezed the last breath out of the business and now they're jumping ship before it starts sinking.

[Honolulu_Blue]

Wouldn't their competition be stores like Best Buy, Wal-Mart, etc? I'd think this would go through with no problem since there's still tons of competition for the video game market.
Exactly. You throw Best Buy, Target, Wal-Mart, K-Mart, Media Play into the mix and all of a sudden EB and GameStop aren't so big. It can get even smaller if you throw in Amazon.com and other on-line retailers. I

[nfg22]

I dont undertand why you wouldnt order offline...you can get used games cheaper...and new games cheaper and you dont have to leave the house...I mean maybe get the game a few days faster but I never shop in a store anymore....unless I see something mega cheap...

[Young Drachma]

Agreed. $1.44 billion does sound like a lot for the EB chain.

Not when you consider that EB was their largest mall competitor. I worked in a Gamestop store that was among the 10 top stores in the country (grossing over $1 million in sales a year) and we were always spying on the EB store downstairs to see what they were doing. Their prices were always higher, but this is fantastic for Gamestop, because now it just adds to their mall monopoly.

So I think it was worth the extra cash to make it happen. But yeah, great work over at EB for pulling it off with this kind of value.

[Young Drachma]

I'm wondering how the FTC is going to sign off on this one, given that they're the two largest specialty game chains in the country, and their primary direct competition are small game stores owned by Blockbuster and Hollywood Video.

I mean, this deal would either cause two locations in my town to close, or make it so we've got three GameStops. That seems excessive.

Nah, Gamestop nee Software Etc. always seemed to like having too many stores in the same area to maximize profits. I guess now with owning EB it wouldn't matter, but this is the same company that ran imprint companies like Supr Software and such in other malls, with higher prices simply because they knew they could get it.

I just seem them running the stores as normal and acting as if nothing happened. Sorta like Borders did when it bought Brentanos and Waldenbooks way back.

[Young Drachma]

Exactly. You throw Best Buy, Target, Wal-Mart, K-Mart, Media Play into the mix and all of a sudden EB and GameStop aren't so big. It can get even smaller if you throw in Amazon.com and other on-line retailers. I

But none of those guys are in malls. In less mall populated areas, might not matter. But in places where malls still dominate, this is a huge deal as Gamestop is now the undisputed king of mall video game sales.

[JonInMiddleGA]

I dont undertand why you wouldnt order offline...you can get used games cheaper...and new games cheaper and you dont have to leave the house...I mean maybe get the game a few days faster but I never shop in a store anymore....unless I see something mega cheap...

Never underestimate the appeal of "in my hands right NOW".
Nor the impact of consumers without creditcards (more of those than you'd think) or those who don't trust online purchasing.

[sooner333]

There is a GameStop standalone in the same shopping center anchored by a Wal-Mart Supercenter in Norman. There is also another one at the mall.

[Abe Sargent]

I like EB.com more than GS.com because they have older titles. I also believe that GS tolerates some amazingly crappy service from their employees. I can choose from two local GS stores, and one I shopeed at 10 times and they screwed me over three of those times (wrong disc, wrong game, wrong price). I as so frustrated that in December I moved my business to a store out by a Wal-Mart (which I boycott) and I have been very pleased. They've even fixed problems that the other store did for me (and they mentioned that they are alwasy cleaning up the other store's messes). There should be no telerance for that sort of incompetence, yet it's been going on for several years.

-Anxiety