Atari May Be Near Deal to Sell Its Ailing Federated Group Unit
Atari Corp., the video game and computer maker, confirmed Wednesday that a sale of all or part of its faltering Federated Group consumer electronics retailing chain may be imminent.
Although Atari declined to reveal the potential buyer or buyers and refused to discuss prices, industry sources said Silo Inc., a Philadelphia company that operates 210 electronics outlets nationwide, is interested in acquiring the 21 Federated stores in Southern California.
All or a portion of the remaining 20-plus Federated outlets in Arizona, Texas and Kansas could be sold to a separate buyer. Industry sources said the buyer is believed to be Fretter’s, a Detroit-based operator of 52 consumer electronics stores throughout the Midwest.
Silo executives declined to comment on the rumored deal, and Fretter’s officials could not be reached. While refusing to name the parties with whom it is negotiating, an Atari spokesman did say the Federated chain could be split between two buyers, with the Southern California stores going to one buyer and the Midwestern outlets to another.
A deal with Silo would infuse the already intensely competitive and price-sensitive Southern California electronics market with new vigor. This market, dominated by Adray’s and Circuit City, is considered one of the nation’s best because of its economic strength and its residents’ seeming fascination for electronic gadgets.
Silo, a subsidiary of the British retailing giant Dixon’s, already has 10 stores in San Diego and is said to be anxious to expand into the rest of the Southland.
Silo entered Southern California about three years ago with the acquisition of Appliance TV City, a San Diego chain. A manager of one of those outlets said the company has been looking for opportunities to extend its reach into Orange and Los Angeles counties.
Federated, based in City of Commerce, represents such an opportunity.
Sunnyvale, Calif.-based Atari purchased the chain, which then had 91 outlets, in August, 1987, for $67.3 million. But within months of the acquisition, the operation soured and Atari was beset with losses. Last March, after announcing a loss of nearly $85 million because of the continuing poor performance of the retailing unit, Atari put Federated on the auction block.
Analysts said Federated was the victim of several problems: its own poor marketing efforts and limited product selection, aggressive price cutting from Circuit City and Adray’s, and a continuing absence of hot new electronic gadgets to lure customers into its stores.
At the time Atari purchased the chain, Atari Chairman Jack Tramiel said the deal was part of his overall strategy of building an international electronics company that would handle everything from computer chips to finished goods.
But a year after the purchase, Atari sued Wilfred Schwartz, the founder and former chief executive of Federated, and several of its financial advisers for overstating the company’s assets. Atari claimed it would not have bought the chain if it had known its true financial condition.
