PC Wholesaler Merisel to Acquire Computerland Distribution Outlets : Competition: The deal could raise fears among other retailers that the company will favor its franchisees over them.
In a deal that could produce America’s largest computer products distributor, El Segundo-based Merisel Inc. said it will acquire the franchise and distribution operations of Computerland and obtain the U.S. rights to the Computerland name for up to $110 million.
The move, which will leave Pleasanton, Calif.-based Computerland better capitalized at half its original size, may signal a new wave in the consolidation of the computer industry’s distribution channels even as the volume of sales explodes.
But the deal could raise fears among other retailers who buy from Merisel that the new giant might favor Computerland franchisees, in whose success Merisel will have a larger stake.
“It has huge implications for the whole PC distribution business,” said Robert Falletra, editor of Computer Reseller News. “This is the first time a wholesale distributor will be involved in a business that sells directly to end users.”
Merisel’s letter of intent with Computerland covers 235 franchises and 500 Datago “affiliates” with whom Computerland had a sales relationship. Merisel will also become the preferred supplier for Computerland’s corporate and government sales operations.
That could hurt Santa Ana-based Ingram Micro, the largest computer products distributor before the Merisel deal. But privately held Ingram and other Merisel competitors said they expect to make up in business from other computer dealers what they lose from Computerland, which is the nation’s largest computer dealer.
“It puts them in competition with people who have been their customers,” Ingram President Sam Inman said of the Merisel acquisition. “I believe other computer resellers will be very uncomfortable with that, and we see it as an opportunity to increase our market share.”
“They’re just blowing smoke because they’re unhappy about this deal,” said Merisel Co-Chairman Bob Leff, who insists that because his company will not own the actual franchises, it will not be in direct competition with any of its other customers, such as CompUSA or Micro Age.
But Merisel acknowledges that it will profit by selling to its franchisees as well as from royalties on the franchisees’ sales. On the other hand, CompUSA Chairman Nathan Morton, whose firm is opening 30 new stores this year as falling computer prices fuel sales, said he isn’t worried by the new situation.
Merisel shares jumped 87.5 cents to a record high of $15.625 in Nasdaq trading Friday. In 1992, Merisel posted net income of $19.7 million, or 67 cents a share, on revenue of $2.24 billion, reflecting its paper-thin margins selling PC hardware and software.
Computerland last year had about $2 billion in sales, about half from its franchise and distribution business. The firm has had financial troubles since its purchase of TRW’s computer services division last year. Computerland will temporarily retain the rights to its name and will keep the Computerland name internationally. The new Merisel Computerland unit will be run by the unit’s current president, Martin Wolf.
The two companies said they expect the deal to be completed this year.