Record Factory to Sell 23 Stores to Wherehouse

Wherehouse Entertainment said Thursday that it has signed a letter of intent to pay about $11.6 million for 23 stores in the Record Factory chain, one of its two biggest competitors in Northern California.

Like Wherehouse, the Record Factory--which is based near San Francisco, in Brisbane--sells records, tapes, compact disks and computer software. For the fiscal year ended April 30, the 23 stores involved in the deal had revenue of $28 million.

The privately held chain’s 14 other stores are in locations near existing Wherehouse stores and therefore are not part of the purchase, said Richard H. Chapin, Wherehouse’s chief financial officer. Record Factory will close those stores.

Of Wherehouse’s 158 stores, 37 are in Northern California. Wherehouse’s other main competitor, Tower Records, operates six record and four video stores in the state’s northern half.

Financing for the purchase is expected to come from a public offering of $35 million in convertible subordinated debentures, Chapin said.

Proceeds will also be used to accelerate the company’s expansion and reduce its bank debt, President Louis A. Kwiker said in a statement.

The company also announced a 5-for-4 stock split, payable Aug. 15 to shareholders of record July 25.