Gaming Giants Craft $1B Merger Plan

GRAPEVINE, TX-With high-tech gaming at its height, two leading retailers have signed a $1.44-billion merger agreement to create a 3,200-store network with $3.8 billion of projected annual revenues. The merger is expected to close before the retailers' Q2 begins.

The locally based GameStop Corp. will leverage the $950-million cash portion of the takeover of the 28-year-old Electronics Boutique Holdings Corp., headquartered in West Chester, PA, by issuing senior bonds and tapping cash on hand. In its fourth-quarter 2005 earnings statement, GameStop reported $171 million in cash was in the till. The balance of the financing will come from stocks, according to a press release issued this morning.

Electronics Boutique shareholders will receive $38.15 in cash plus the equivalent of 0.78 shares of GameStop's class A common stock, which was priced at $21.61 apiece at Friday's market closing. The stock value works out to $17.01 per share, pushing the all-in total to 34.2% more than the closing price of Electronics Boutique shares. Financing commitments are in hand from Citigroup Global Markets Inc., Bank of America Securities and Merrill Lynch & Co. to fund the cash portion and transaction costs.

"We are merging these two companies from a position of strength," R. Richard Fontaine, GameStop's chairman and CEO, says in today's release. "Each organization is performing very well now, and we will be able to do more together by extending geographic reach, improving customer service, and continuing our aggressive store growth plans." A conference call will be held this afternoon to discuss the merger, which has been cleared by both boards of directors but is still subject to regulatory approval.

GameStop's Fontaine and its vice chairman and COO, Daniel A. DeMatteo, will remain in their posts after the merger. Other upper-management positions are under discussion. The combined company, GameStop Corp., will have stores in 50 states, the District of Columbia, Puerto Rico and 600 stores in Australia, Canada, Denmark, Germany, Ireland, Italy, New Zealand, Norway and Sweden.

GameStop's 1,826-store network consists of 50 states, District of Columbia, Puerto Rico and Ireland. The Grapevine retailer, which also owns a commerce-enabled Web property and trade magazine, reported record sales and earnings last month in its fourth-quarter 2005 report to shareholders. Sales topped $1.8 billion in FY 2004, up 16.7% from 2003. Just in the fourth-quarter, sales jumped 13.3% to $708.7 million.

Electronics Boutique, a Fortune 1000 company, has 1,977 stores in the US, Puerto Rico and eight countries. Electronics Boutique reported to shareholders last month that its net income dropped slightly in Q4 2005 although the year-to-year comparison of total adjusted revenue increased $38.1 million from $39.4 million. Total Q4 revenue was $809 million versus $671.5 million in the previous year. The fourth-quarter results included 108 store openings.