W. Chester Firm Is In The Game A $110 Million Acquisition Would Combine Electronics Boutique And Funco. The Market: Players 12 To 35.

Posted: April 04, 2000

Electronics Boutique Holdings Corp. said yesterday that it had agreed to acquire Funco Inc., a Minneapolis-based electronic games retailer, for $110 million in a deal that would make the West Chester company the largest specialty retailer of electronic games in the world.

In a telephone conference call with analysts yesterday morning, officials of both companies said Electronics Boutique had agreed to pay $17.50 per share of Funco's outstanding stock. A tender offer is to begin the second week of April. The deal is expected to close by mid-May, if it is approved by Funco shareholders and the Securities and Exchange Commission.

Funco's stock soared on yesterday's news, closing at $16.875, up more than 42 percent on the battered Nasdaq. Electronics Boutique shares closed at $19.25, up just more than 12 cents.

With the acquisition, Electronics Boutique would have more than 1,000 stores worldwide, nearly $1 billion in annual revenues and a combined total workforce of 7,000. Corporate headquarters would remain in West Chester.

Company officials and analysts said the deal would combine the complementary strengths of two retailers that have targeted different segments of the gaming market.

Electronics Boutique sells video and computer games in 628 stores in the United States, Canada, Australia and South Korea, and on the Web. All but 20 of its stores are in regional shopping malls. Its core customers are serious gamers ages 15 to 35 who buy as many as 35 titles a year.

Funco operates 400 Funcoland stores in strip malls, has a growing e-commerce presence, and publishes the video-game magazine Game Informer. Funco sells new gaming merchandise, but also has created a niche selling used electronic games. Funco officials said their core customers were 12 to 22. The strip-mall stores will continue to operate under the Funcoland name.

Joseph Firestone, president and chief executive officer of Electronics Boutique, said the deal would enable Electronics Boutique to "market products to customers wherever it is convenient for them: in shopping malls, neighborhood stores and the Web."

He said Funco's strip-mall locations attracted younger consumers who lived nearby and often traveled to the store on foot or by bicycle.

David Pomije, Funco's chairman and CEO, called the arrangement "an excellent transaction for Funco's shareholders and an excellent opportunity for its employees."

Pomije also said the deal "gives the combined company some leverage among manufacturers and leverage in marketing, and a clear advantage in distribution and merchandising."

Richard A. Zimmerman, an analyst at Janney Montgomery Scott, called the deal "a logical acquistion . . . It will be a positive for Electronics Boutique and for Funco shareholders."

He noted that before the news, Funco shares had been trading in the $11 to $12 range.

Zimmerman said the transaction should be completed in plenty of time for the busy holiday season and for the widely anticipated release of Sony's PlayStation2 in the United States in the fall.

"This gets them up in time, with PlayStation2 expected at the end of September or early October," Zimmerman said. "Given the results thus far in Japan, this should be positive for any retailers."

"I think it is a great deal for Electronics Boutique," Harry G. Katica, an analyst with Prudential Securities, said. "It expands their share in the entertainment-software business."

Firestone of Electronics Boutique said plans also called for opening about 125 new Electronics Boutique locations and 60 Funcoland stores around the world by the end of this year.

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