Atari Sues Federated Founder, Others; Says Assets Overvalued

Atari Corp. has sued the former management and financial advisers of Federated Group, charging that they intentionally overstated the consumer electronics retailer’s assets by more than $43 million.

The result, Atari said, is that it paid too much to buy Federated last October. The purchase price was $6.25 a share, or $67.3 million.

Atari’s lawsuit, filed Friday in U.S. District Court in San Jose, stated “that Atari would not have entered into the merger agreement to pay $6.25 if it had known Federated’s true financial condition.”

Named in the suit were Wilfred Schwartz, founder and chief executive of Federated at the time of the merger; several other former Federated officers and directors; Ernst & Whinney, the accounting firm used by Federated before the merger, and Goldman, Sachs & Co., Federated’s investment banking firm. Schwartz said he was unaware of the lawsuit and could not comment, but added that several suits have been filed by both sides concerning the acquisition.

Officials of Atari, a computer and video game manufacturer, could not be reached at their headquarters in Sunnyvale, Calif.

City of Commerce-based Federated, which at the time of the merger operated 68 stores in California, Texas, Arizona and New Mexico, was losing money before and after the acquisition and has closed some of its outlets.

Atari has been doing well, particularly in Europe, “but the drain from Federated is pretty severe,” said Stewart Alsop, editor of PC Newsletter.

“If Federated were doing really well, Atari probably wouldn’t mind that much,” he said. “But Federated continues to lose money.”